Executive Summary
Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the latest on the HEALS Act, the proposed legislation from Senate Republicans that may become the 5th economic stimulus bill in response to the coronavirus pandemic but is currently still mired in debate, not only between Republicans and Democrats, but also within the Republican party, and raising questions of how quickly the trillion-dollar stimulus will actually get passed and what form it will end out taking.
Also in the news this week was an announcement by the Democrats of their official "Party Platform" should they take leadership in Washington, which for financial advisors includes a notable provision of lifting the standards for all financial advisors, effectively signaling that if the Democrats win in November, there may be a new movement in 2021 to replace Regulation Best Interest and/or the Department of Labor's proposed Reg-BI-coordinating changes and implement a more full-force fiduciary obligation for all investment advisers and broker-dealers.
From there, we have a number of articles about referral marketing, including the recognition that so few consumers are unhappy with their advisors that just waiting for prospects to ask an existing client "Do you know a good advisor?" (in the hopes of being referred by your client in the moment) probably isn't enough to drive referrals, how even great advisors fail to get referrals because they're not specific enough about the problems they solve, why advisors also often fail to get referrals because existing clients don't know who to watch for that would be appropriate to refer to their advisor (i.e., a lack of clear positioning in the marketplace), and how to increase referrals by (re-)focusing not on getting more referrals from everyone but just a few people who are most likely and interested to refer and may become 'power-referrers' for the advisor.
We also have several articles on insurance, including a look at how advisors and their clients are making health insurance decisions in the face of pandemic layoffs (including how to potentially 'game' the COBRA system with a newly-extended 120-day window to apply for coverage... but only if and when it's really needed?), how the pandemic may ironically be improving the financial health of long-term care insurers by sadly cutting claims short (but at least potentially stabilizing pricing in the process), and the rising concerns of how indexed universal life insurance is being illustrated (or potentially, over-illustrated) given the increased risk that returns for the coming decade will not be nearly as rosy as they were for the past 10 years.
We wrap up with three interesting articles, all around the theme of making slow but steady incremental improvements for ourselves: the first explores how the key to change is not about whether we engage in (new) activities every day or get the desired outcomes but whether we can honestly say we gave it our "best effort" (which creates the kind of 'focused practice' that ultimately leads to results); the second looks at the behaviors that best provide us resiliency in the face of the inevitable life setbacks that may come as we try to achieve our goals; and the last provides a powerful reminder that in the end, long-term success isn't just about going through the right routines but engaging in "practice" that helps us find and regain the focus we need to succeed (while recognizing that, as with any effort that requires practice, it will take time, and setbacks along the way and disruptions to the typical routine are normal and to be expected!).
Enjoy the 'light' reading!
Coronavirus-Stimulus Plan Splits Senate Republicans (Lindsay Wise & Siobhan Hughes, Wall Street Journal) - The big buzz over the past week has been the looming possibility of a new round of $1-trillion-or-more economic stimulus as Congress considers another round of legislation, with a time pressure of finishing the new proposal by the end of this week in time for both Congress' August recess and expiring unemployment benefits. Yet as the week closes, thus far, the prospective legislation is still stuck in the throes of Congressional debate, a matter of not only challenging compromises between Republicans and Democrats, but even amongst Senate Republicans that are heavily divided between the need to show that Congress is doing something (with an election looming in barely 100 days) and policy concerns about the role that government spending should play in the economy (including and especially in times of economic stress). The fact that polls are suggesting that the Democrats could even be within reach of taking back the Senate is putting further pressure on the process, as Republican spending hawks continue to challenge the legislation, but those in swing states are expressing concern about returning to the August campaign trail "empty handed" without a compromise, which in turn is becoming a bargaining chip unto itself for the Democrats. Still, the initial Republican plan, dubbed the HEALS Act, has been put on the table, and includes not only an extension of unemployment benefits (albeit at a lower $200/week amount instead of the prior $600/week), assistance to schools, liability protection for businesses, and a potential new round of PPP stimulus (but this time limited more directly to firms that actually experienced a significant revenue decline earlier this year due to the pandemic). Nonetheless, with the election looming large, debate about the HEALS Act is taking on an especially political tone, as both parties position for what scope and scale of legislation will both help the economy and their party's respective chances in November.
Democrats Vow To Scrap Reg BI In Party Platform (Mark Schoeff, Investment News) - In a draft of its Party Platform released this week, the Democrats signaled that if they are successful in the voting booths this fall, the party intends to reform (or scrap altogether) the recently enacted Regulation Best Interest. While the Platform guidance doesn't explicitly name Regulation Best Interest, it references "the Trump Administration's regulations allowing financial advisors to prioritize their self-interest over their clients' financial wellbeing", a direct swing at the SEC's decision not to implement a full fiduciary duty in Reg BI. In addition, the advisor regulatory reform would also likely push back the recent Department of Labor proposal that similarly aims to apply a non-fiduciary standard for more financial advisors working with retirement plans (effectively expanding the SEC's non-fiduciary approach into the world of ERISA). And fiduciary advocates note that, ironically, because of the compromises the SEC made in Reg BI, that if lawmakers take action next year, new advisor regulation may be even more stringent than it would have otherwise been, as there will be political pressure to show a clear contrast to the now-status-quo Reg BI approach. Of course, framing up a policy issue as a part of the Party Platform doesn't necessarily ensure any substantive legislation or regulation will come to pass, even if the Democrats do win in November... but nonetheless, it certainly sends a signal that the debate over advisor regulatory standards isn't over yet.
Do You Know A Good Advisor? (Philip Palaveev, Financial Advisor) - According to 2019 research conducted by Palaveev's Ensemble Practice consulting firm, 63% of organic growth for the average advisory firm came from referrals, of which nearly half came from a recommendation from existing clients and the other half came from external referral sources (from RIA custodians to outside Centers Of Influence). Yet while referrals have long been an industry standard for growth, the concern for many is that it means they don't have any other marketing systems that are working well (such that referrals are the only thing that's left!?), and that it's important to create other scalable channels for systematic growth. On the other hand, though, Palaveev also notes that if a firm can't create a reasonable level of sustainable growth from client referrals, that itself could suggest deeper problems for the firm in either its existing marketing and positioning, its value proposition, or its client service (leading existing clients to not refer as much as the firm would like). Though the first pillar that prospects consider when evaluating a new advisor is simply the "trustworthiness" of the advisor. Which helps to explain why referrals work so well - if a prospect trusts their friend and their friend refers (and therefore trusts) their advisor, the client's trust is effectively transferred to the prospect. However, this doesn't always mean that clients have an opportunity to refer in the first place, as a recent research study showed that only 0.3% of clients were "very unhappy" with their current advisor and another (just) 1% were "unhappy", which means there aren't many prospective clients asking"do you know a good advisor" in the first place. And while some clients may proactively try to seek out and 'recruit' new clients for the firm, that takes a client who is more than just "satisfied" but one that is outright engaged with the firm. Especially since most advisory firms don't have a clear story that their clients can tell about why they're unique in the first place (in a way that would get others excited to work with the firm when existing clients mention it). Which is why Palaveev suggests that the real key is trying to create a kind of 'community' that clients would want to be a part of - it makes it easier for existing clients to recruit, and gives prospects something they can actually want to become a part of.
Why Do Great Advisors Fail To Get New Business? (Claire Akin, Indigo Marketing) - One of the biggest frustration for great financial advisors is that simply being great doesn't necessarily make new clients just show up and ask to do business with them. Because the reality is that even if the advisory firm provides great advice to clients, new prospects don't necessarily know that, aren't sure who to trust (because any/every advisory firm says they're great at what they do), and may not be sure what steps to take to figure that out. Which is why, as Akin notes, even great advisors still have to clearly articulate in their marketing who they're trying to reach, address at least one urgent problem they can solve, have messaging that focuses on that key issue and communicates it in language the ideal prospect (and not just the advisor themselves) would understand and don't have a clear Call To Action about what prospects should do if they want to move forward. So what's the alternative? Simply put, to turn all those issues around, by getting a clear picture on the firm's ideal client they want to (and are well suited to) help, pinpointing one urgent problem the firm can solve for that specific group, showing an understanding of the fears and motivations of the ideal client, establishing a demonstrated expertise in solving those problems, and creating a sales process that has clear next steps the prospect should take to move forward if and when they're interested in exploring further. But ultimately, the key point is that prospects engage with an advisory firm when they have a problem to solve - one that makes them step forward and say "today is the day I'm going to find and hire a financial advisor"... so what problem do you stand up and show you can solve for?
Referrals: Why You May Unwittingly be Letting Hundreds Go Each Year (Tony Vidler) - Some people will never give an advisor a referral no matter how nicely they ask because they simply don't feel comfortable doing so, while others are very referral-inclined and will happily do so with just the slightest nudge. Most, though, are in the messy middle, or what Vidler calls the "maybes", who potentially might refer but need a little more help to do so, particularly with respect to how we position the concept of referring, and how we go about doing the actual referral ask. And the reality is that it doesn't necessarily take much to have a huge impact. After all, if 2/3rds of clients are "maybes", and better positioning could produce just 1 referral per year from each... how many new referrals would that add up to? What if everyone you knew - clients or otherwise - were so impressed with what you did that they could clearly make 1 referral (just 1 each, but multiplied by everyone you know?). So what does it take to drive that kind of activity? Vidler suggests the first key is how the advisor is positioned, to address 3 key issues: establishing the expectation in the client's mind that you will be referred, if appropriate; ensuring that they know the prospect is still in control of the decision (and that you won't try to dominate and be too aggressive); and ensuring the client knows how you deliver your best value and to whom (so they can watch for those opportunities on your behalf). In fact, Vidler suggests that if this groundwork is laid out well, advisors may not even need to ask for referrals in the first place - because when clients understand they can and should refer when it's a good match, that their referral will be respected, and understand exactly who to refer that is a good fit... the referrals tend to flow naturally anyway!
A Four-Step Process To Increase Your Referral Sources (Stacey Brown Randall, Iris.xyz) - In the end, referrals come from referral sources, which means growing referrals is ultimately a function of both whether referral sources are providing those referrals, but also simply how many referral sources an advisory firm has in the first place. Of course, for most firms, the most straightforward referral sources are simply "clients", and the more clients the firm has, the more referral sources there are and the more opportunity there is for referrals to compound. However, there are also external referral sources, most commonly known as COIs or "Centers Of Influence" - those people in the advisor's community who themselves have a strong network, a high level of trust, and therefore are in a 'central' position of 'influence' to be able to drive referrals (e.g., a prominent local attorney or accountant, a popular mortgage broker, etc.). Accordingly, the first real question is "what is the advisory firm's mix of referral sources" in the first place - all clients, all COIs, or a mixture of the two, and if the latter what is the balance between the two? From there, it's important to look at who is referring the advisor already, recognizing that not all clients (or COIs) will be referrers... which means it's important to focus the advisor's time and resources on those clients and COIs who do refer (as opposed to seeking out and asking for referrals from 'everyone', which is just a waste of time and effort for those who simply aren't going to refer because it's not their style in the first place). A fresh look at that (appropriately narrowed down) list of actual referrers may in turn further highlight whether the list is too focused on only one type (all clients, no COIs, or vice versa?), whether the advisor is spending time on the best referring relationships, and where to put energy to expand (one type or the other) further. Which for clients, may include proactive client events or meetings just to talk about referrals, and for COIs, might include outreach on LinkedIn or looking for a relationship through existing clients (e.g., what attorneys and accountants do your existing clients already work with?). The key point, though, is simply to recognize that referrals stem from relationships, which means bolstering referrals is all about focused relationship-building with the people most likely to refer, and moving on quickly from those who clearly won't (who may remain clients or acquaintances, but don't need referral-relationship-building time that is just going to go to waste).
How The New COBRA Rules Affect Health Insurance Planning (Carolyn McClanahan, Advisor Perspectives) - The explosive uptick in unemployment in recent months due to the coronavirus has, for many households, created not only an income crisis for their ability to cover their bills, but also a health insurance crisis given how access to health insurance (or at least, affordable health insurance) has long been tied to employment. Of course, those without health insurance may be able to apply for health insurance via state insurance exchanges, which is costly in many states, but at least provides coverage and may have significant subsidies through the Premium Assistance Tax Credit to help with that cost of coverage. However, for those who won't be able to use Premium Assistance Tax Credits, the next alternative is often COBRA, which provides the option of continuing the employer's health insurance coverage for a period of time after employment ends... albeit still at the full (or actually, up to 102% of the) unsubsidized premium cost. Still, with large-scale unemployment and estimates that as many as 10 million may lose their health insurance in the current environment, the Department of Labor has expanded COBRA coverage, now providing ex-employees up to 120 days (instead of just 60 days) to elect COBRA coverage after a qualifying event (e.g., a layoff). Though McClanahan notes that with the longer time period, some are choosing to go without health insurance for a period of time - and try to save at least a few months of coverage - requiring and filling out the COBRA paperwork but waiting to submit it as long as they remain healthy (and saving on premiums during the interim, though if they later enroll they'll have to pay premiums retroactively back to when they separated from work).
COVID-19 Increased LTCI Claimant Mortality By 30% And Is Stabilizing LTC Carriers (Allison Bell, ThinkAdvisor) - One of the grim challenges of the coronavirus pandemic is that it is especially dangerous for senior citizens and has ravaged nursing homes in particular, where an infection spreads quickly amongst already-frail-and-at-risk residents. As a result, Unum - a major long-term care insurer that covers nearly 1M people - noted recently that the death rate for those collecting LTC insurance benefits under Unum policies spiked almost 30% in the second quarter (with an average age of insureds on claim of age 83). In addition, concerns about coronavirus exposure in nursing homes also meant that the number of people seeking to use long-term care services for the first time was down about 15% in the quarter. Which means, ironically, Unum's financial position (at least on its long-term care insurance business) actually improved as a result of the pandemic, with its loss ratio dropping to 67% (from a target range of 85% to 90%). And raises the question more broadly of whether the pandemic will end out being an event that stabilizes the long-beleaguered long-term care insurance industry?
Indexed UL Is The Hottest Thing In Life Insurance But Are Buyers Aware Of The Risks? (Leslie Scism, Wall Street Journal) - In the first 9 months of 2019, indexed universal life accounted for 1/4th of all individual life insurance sales (as measured by premium), up from just 4% in 2008. The appeal of indexed UL policies is the potential to earn returns tied to stock indices, but with a downside guarantee that at worst the policy simply generates no return (i.e., 0% but not negative) in a down year. However, the reality is that while indexed UL policies are technically not securities investment products, they have still benefitted from the powerful bull market after the financial crisis... raising concerns about whether their prospective returns are being over-illustrated relative to what may come going forward from here. In fact, regulators are already in the process of putting in place new rules this year to rein in "overly rosy" IUL product illustrations... which at best may induce investors to buy policies that won't realistically achieve those returns and, at worst, could still cause the policy to crash and burn. As while IUL policies can't have negative investment returns, it's still possible that significantly-lower returns could result in negative results after policy expenses. After all, the last round of IUL regulations (from 2015) limited growth rate assumptions to "just" 5.92%, which in practice is barely under the 6.26%/year growth in the S&P 500 over the past nearly-100 years (when measured based on price growth excluding dividends, which is how IUL policy returns are typically calculated). And ironically, the phenomenon of universal life policies being "over-illustrated" with too-optimistic growth assumptions isn't new - a similar issue occurred in the 1970s and 1980s, when policies were illustrated with then-record-high interest rates and ultimately "blew up" (or at least required significant additional premium contributions) to sustain when they were supposed to be self-sustaining from the original (turned-out-to-be-too-rosy) projections. Yet the challenge is that with the significantly-more-complex interest crediting formulas of indexed universal life, it's arguably harder than ever to simply figure out which policies are being projected with reasonable growth assumptions (or not?) in the first place.
Six Empowering Questions To Ask Daily (Jim Rohrbach, Advisor Perspectives) - The phenomenon of wanting to make a change and then struggling to follow through on it is so widely recognized that the annual "New Year's resolution" is known not for being a time of change but more a time for resolutions that won't likely last the month of January (much less the year or a lifetime). Because in the end, behavior change isn't merely a function of happy thoughts about a better life, but finding the focus and self-motivation to actually make the change, and getting more clearly focused on what really matters that we'll put our energy towards. In his popular book on self-motivation, entitled "Triggers", popular CEO coach Marshall Goldsmith suggests that those who want to make changes consider 6 key empowering questions at the end of every day, whether the advisor did their best to: be happy; finding meaning; be fully engaged; build positive relationships; set clear goals; and make progress towards goal achievement. Notably, a key aspect of the framing is that it's not simply a matter of whether you engaged in a certain activity, but whether you gave it your "best effort"... which still isn't necessarily about the outcome that may (or may not) have been achieved, but at least about whether the advisor was focused on really trying (i.e., giving it their best effort) to make progress. Because in the end, what really creates change is not simply activity, but focused "practice", and a willingness to keep trying again until you eventually succeed (even and especially despite the inevitable setbacks along the way). Ultimately, Goldsmith suggests actually scoring yourself on a 1-10 scale, and capturing your score to see the trends over time... which can either reinforce the cycle of success, identify a goal that is lagging (perhaps just time to drop it, because it's clearly not important?), and eventually even restructure your day to allow for better time, capacity, and focus, to achieve the changes you really want to achieve.
3 Things The Most Resilient People Do Every Day (Eric Barker, Barking Up The Wrong Tree) - 2020 has been a turbulent year, to say the least, not only for the presence of a serious health threat and the economic disruption it's created, but also the personal disruption it's brought to our lives as routines (from work to school life). The good news, though, is that despite the common fear that difficult times will lead to violence or anarchy, in practice it turns out that human beings are more likely to come together in times of stress, and altruism actually rises. Still, though, it's not enough to 'just' depend on the community to come together; instead, difficult times are also an opportunity for us to make changes in ourselves, too. The starting point, though, is simply about keeping the Hope that times can change for the better - even and especially when they're darkest - and as it turns out, Hope is all about our ability to stay focused on what may come (that is, hopefully, better!) in the future. In other words, Hope is all about filling the "GAP" - short for Goals, Agency, and Pathways - where we start by seeking clear growth-seeking Goals for ourselves (i.e., not the "I will stop doing X" but "I'm going to spend one hour every morning doing Y" in a manner that is specific, achievable, and moderately-but-not-too difficult), then build our own Agency by recognizing that it's not a matter of what we Want to achieve but what we Choose to pursue (i.e., use the words "I Choose" to force yourself to own your own level of agency and control), and finally defining the Pathway it will take to achieve the goal (i.e., it's not just about visualizing what success looks like, but then also translating it to a pathway you can take to actually get you there). Or stated more simply, the key to resilience is to try to create an upward spiral by having a goal of what you Want, then declaring what you will Choose to do to get there, and finally play your "mental movie" of the pathway you're going to commit to take to make it happen.
It's Not About Routine, But About Practice (Ryan Holiday) - Daily routines are an important way to bring a feeling of stability to our lives... except, unfortunately, the reality is that routines can be fragile (as the disruption of the pandemic has clearly shown for so many of us). Which is why Holiday suggests that what really matters are not the routines (that are routine until they aren't), but our Practices, or the things we do regularly (albeit not necessarily daily) that we return to time and again in order to center ourselves. For instance, watching the news with your morning coffee is a routine, but prayer or meditation is a practice; eating lunch at the same place and time every day is a routine, but being vegan or keeping kosher is a practice; going to the gym at 9 AM every other day is a routine, but exercising regularly is a practice. In essence, routines are about our daily rhythm, but practices are about our lifelong pursuits, which is important because routines can be easily disrupted, but practices are by their nature more flexible and adaptive. Which helps to explain why so many key practices - wake-up times, quiet moments of reflection, exercise, walks, reading, journaling, etc., are so universal amongst human beings. Thus why even famous stoics like Marcus Aurelius, whose life was full of horrific challenges (from burying 8 children, to an unfaithful spouse, a ne'er-do-well co-emperor, and more) but still managed to adapt and remain famously stoic and resilient. And what's notable is that even amongst leaders facing immense challenges, from Aurelius to Churchill, they were able to create and maintain practices... which, if they could find time to achieve, any particular financial advisor could as well. And so while our routines may be more disrupted than any can recall by the current pandemic environment, Holiday urges that wherever we are, and whatever we're doing, we can still make time for essential Practices like reading, journaling, exercising, and walking... practices that can be adapted to whatever is happening in our lives, as long as we choose to make them the priority they need to be.
I hope you enjoyed the reading! Please leave a comment below to share your thoughts, or make a suggestion of any articles you think I should highlight in a future column!
In the meantime, if you're interested in more news and information regarding advisor technology, I'd highly recommend checking out Bill Winterberg's "FPPad" blog on technology for advisors, and Craig Iskowitz's "Wealth Management Today" blog as well.
Looking forward to this edition of weekend reading! The long-term care article seems interesting!