Weekend Reading For Financial Planners (August 17-18)

SEC's Landmark Recordkeeping Action Against Off-Channel Communications Could "Embolden Examiners"

(Leo Almazora | InvestmentNews)

While texting has become a ubiquitous communication medium in modern life, one potential hangup for advisors in adopting it for client communication is that it – like other digital communications channels – falls under the umbrella of "written communication" (or advertising in the case of communicating with prospects), and the regulations that oblige advisors to retain and archive such communications. Which can be a challenge, because unlike email and social media communications that are generally stored on decentralized servers and cloud networks that compliance can access and oversee directly, text messages typically go directly to an advisor's personal device, are there stored locally, and can be easily deleted – a potential nightmare for compliance departments needing to oversee the communications activities of their advisors.

Given the apparent increasing use of texting between financial advisors and their clients and prospects (and a lack of proper recording of these conversations in many cases), the SEC this year has cracked down on firms (particularly broker-dealers and dually registered broker-dealer/RIAs) for failure to keep proper records regarding electronic communications, including texting. In February, the SEC announced that 16 firms that agreed to pay more than $81 million in fines, and followed it up this week with an announcement that 26 broker-dealers, investment advisers, and dually-registered firms agreed to pay combined civil penalties of $392.75 million for "pervasive and longstanding use of unapproved communication methods, known as off-channel communications", failing to maintain and preserve required records for these communications in the process. The largest penalties ($50 million each) went to some of the largest broker-dealers, including Ameriprise, Edward Jones, LPL Financial, and Raymond James.

While the SEC appears to have so far focused its attention largely on broker-dealers, some observers anticipate that RIA communication recordkeeping practices could increasingly come into the regulator's crosshairs. For instance, included in the latest round of penalties was an RIA that was not also dually registered. The SEC said that while the firm had sufficient off-channel communication policies and procedures (i.e., advised employees that unapproved electronic communications weren't permitted), an investigation found that employees were still using prohibited communications, leading to books and records rule violations for discussing an investment strategy with a client and discussing the placing or execution of orders. According to an analytical note by compliance consulting firm Iron Road Partners, this was the first off-channel communication case brought by the SEC as a result of an exam referral, which the firm suggested could lead to future referrals and embolden examiners to focus on off-channel communications during regular examinations.

Ultimately, the key point is that while texting can be a convenient method of communication between advisors and their clients and prospects, adopting effective recordkeeping practices (or, for firms that do not want to use texting at all, ensuring staff are aware of and follow this prohibition) could help them avoid regulatory scrutiny in future examinations. At the same time, with a growing number of communications archiving tools available to advisors (though the subset that can archive texts in addition to emails and social media posts is smaller), firms do not necessarily have to start from scratch when it comes to engaging in text conversations in a compliant way!

Fidelity, Advyzon Create Joint Tech Bundle To Serve 'Small' RIAs

(Brooke Southall | RIABiz)

While many RIAs build their tech stacks one individual component at a time (choosing best-in-class options for each of their desired software categories), others look for bundled options that allow for one-stop shopping (and at least ideally, stronger integrations). And in the competition to gain RIA assets, custodians have sometimes looked to combine their offering with other AdvisorTech solutions to offer such bundles, including a previously popular bundle combining TD Ameritrade's custodial services (which were recently merged into Charles Schwab) with Orion's software suite, or Schwab's historic ownership of PortfolioCenter (a predecessor to Orion).

Fidelity, the second-largest RIA custodian in terms of AUM (trailing only Schwab), appears to be making a similar move, announcing this month that it is joining forces with Advyzon, whose software offers portfolio management, CRM, and performance reporting capabilities, to offer a tech bundle (that will also include Fidelity's Wealthscape custodial platform and eMoney financial planning software) to attract 'smaller' RIAs to the platform (with those using the offering receiving a discount of up to 20% off for Advyzon). Though notably, supporting 'smaller' minimums may be relative for Fidelity, which has been known in recent years to be imposing increasingly higher AUM minimums just to join the platform at all (and while the company declined to comment about minimum asset requirements, anecdotal reports in RIABiz reporting from advisors suggest the company might be requiring at least $100M of AUM for an RIA to custody with them at all).

From the broader industry perspective, though, Fidelity's partnership with Advyzon is notable because the company has, over the past decade, increasingly been investing into its own platform to become a Fidelity "one-stop shop" for RIAs; when the current iteration of WealthScape was first launched in 2016, Fidelity stated that hundreds of staffers were working on the project and the build would consume a 'substantial' portion of the company's $2.5B annual technology budget. Which makes the decision to bundle Advyzon and not continue to push its advisors exclusively towards its own internally bundled platform (that it may have made a multi-billion-dollar investment into?) a remarkable walk back from its previous "all-in-one" approach (albeit similar to others like Orion and Riskalyze which have also recently announced plans to unbundle their all-in-ones as well).

Ultimately, it appears that at a time when Fidelity seeks to gain ground on Schwab in the battle for RIA assets (and faces heightened competition from Altruist and other competitors), the company is looking to be more flexible in allowing RIAs to use whatever technology they want and not have to solely use Fidelity's own native platform. At the same time, the bundling approach does at least 'shortcut' advisors to a particular external partner of Fidelity's, which in turn makes it easier for Fidelity to build deeper integrations to Advyzon (in anticipation of growing use). Which could be particularly convenient for smaller firms that might not have the desire to entirely piece together their own 'a la carte' approach… at least, if they're still large enough that Fidelity will actually be willing to take them onboard?

New Entrants On DeVoe Top Buyers List Signal Potential For Growth In RIA M&A

(Andrew Foerch | Citywire RIA)

Following a period of significant growth in RIA Mergers and Acquisitions (M&A) activity, 2023 saw a pullback in deal flow – with the number of RIA M&A transactions declining to 321 transactions from a record-high 340 in 2022, according to investment bank Echelon Partners – amidst rising interest rates (that can increase the cost of financing deals) and other headwinds. Nonetheless, many market participants remained positive that underlying factors driving M&A activity (e.g., infusions of Private Equity [PE] capital into large buyers and a large number of retirements among RIA founders) would mean that deals could soon pick up.

According to a report from M&A advisory firm DeVoe & Company, there were 126 RIA M&A transactions announced during the first half of the year, up 5% from the first half of 2023, with 61 deals announced in the second quarter, a slight decrease from the 65 transactions announced in the first quarter but an increase from 57 deals announced in the prior-year period. While the list of top acquirors (those with at least 3 deals in the first half of the year) included familiar names (including Wealth Enhancement Group, Allworth Financial, and Cerity Partners), it also had several newcomers, including Constellation Wealth Capital, Arax Investment Partners, Diversify Wealth Management, Perigon Wealth Management, and Miracle Mile Advisors, signaling that interest in RIA acquisitions isn't concentrated in just a few firms. The report also highlighted that the average deal size continues to grow (amidst strong market performance and heightened interest in larger firms), with sellers averaging $927 million in AUM, up from an average of $819 million in 2023. The report noted that while the elevated interest rate environment continues to dampen the dealmaking appetite of some firms, those that have recapitalized recently are "positioned to acquire more aggressively" and that new entrants could emerge if interest rates were to fall.

Altogether, these data points suggest that many firms appear to be shaking off the headwinds that slowed M&A activity in 2023 and are continuing to pursue deals, suggesting that owners of growing, sustainable firms who are considering a sale could receive strong offers, with larger firms (and the client base and advisor talent that comes with them) potentially being increasingly attractive (though some owners might instead choose to create an internal succession plan or find that positioning their firm for a sale could reduce their desire to actually sell it!).

6 Lessons From 6 Years Of Retirement

(Fritz Gilbert | The Retirement Manifesto)

The transition from work to retirement can be a startling one for many clients as they adjust not only to financial changes that come with no longer being employed, but also to the lifestyle (e.g., having significantly more free time to fill) and emotional (e.g., replacing the sense of purpose that might have come from their career) adjustments that are associated with retirement as well. 6 years into his own retirement, Gilbert has encountered several surprises and has identified 6 lessons along the way that might apply to other retirees as well.

To start, while he expected that financial planning as a retiree would be complex, he realized early on that non-financial issues also can be challenging to navigate. For instance, as opposed to being a single transition, retirement tends to be an evolution as an individual navigates different options and opportunities that arise over time. Gilbert found that while many of his broad goals for retirement have remained the same (e.g., giving generously, trying new things, and spending time with family and friends), the ways these have manifested are different than he expected (e.g., he started his own charity and bought a second home). Further, his financial priorities shifted over the first years of his retirement, from focusing on whether his wealth would cover his and his wife's needs throughout the course of their retirements to realizing that they could spend more and taking advantage of this flexibility. Finally, he's found that having a positive mindset has contributed to his success in retirement, allowing him to make the most of his newfound "self-driven" life.

In the end, while the early years of retirement can be a challenging transition, financial advisors are well-positioned to support clients during this phase, not only with financial questions (e.g., how much they can sustainably spend in retirement), but also with helping them mentally prepare for what it really means to retire, from how they want to spend their time (and money) and how they can derive meaning from this new phase of life!

Retirement: Freedom Or Free-Fall?

(Tom Pendergast | Out Over My Skis)

Many individuals have several years to mentally and financially prepare for retirement, perhaps setting a target retirement age and following through on it. Others, though, end up retiring suddenly, perhaps because of a health issue or being let go from their job. Which can make the transition to retirement (which is already a major shock to the system for many) even more challenging.

In Pendergast's case, the sale of the company he worked for allowed him to retire (after months of frustration as the company made changes to make itself more financially attractive). Like many retirees, he spent his first month living a life of leisure, reading, biking, and cooking. Nevertheless, he eventually realized he was unsure of what he wanted to do with himself (spurred on in part by the fact that his friends were still working) and was hired into a new full-time job. However, he failed to find meaning in this new (well-paying) position, which led him to retire again after only 11 weeks on the job.

At this point Pendergast realized that he needed to zoom out and take a look at his finances and priorities. To start, while he owned an expensive sports car, which provided him with a feeling of status and supported his hobby of track racing, he realized that selling it would provide additional financial flexibility (instead choosing to go on occasional trips to different racing tracks rathe than regularly going to the same one) and that the ego boost that comes with status is less important than the feeling that he "matters". Further, after a career in knowledge work, he wanted to do more 'hands-on' activities. With this in mind, he has taken on multiple part-time jobs, including working at a bakery and on a farm, which not only provides him with additional income and social activity, but also with an added sense of purpose for his days, despite his role in these jobs not having the same status as his previous C-suite position.

Ultimately, the key point is that while retirement can create an abrupt change to one's feelings of status and importance, sudden retirements can make this transition even more challenging. Which suggests that early preparation (perhaps with the help of a financial advisor), both in considering tangible retirement goals (e.g., an anticipated retirement date or activities to pursue) and emotional considerations (e.g., how to replace the sense of meaning that can come from work), can help an individual feel more confident, whether their retirement starts when they expect it to or much earlier!

Lessons From Another "Faux-tirement"

(Christine Benz | Morningstar)

"Retirement" is often thought of as a one-time event, a permanent transition from full-time work to a life of leisure. But in reality, there potentially are many different types of retirement, including "semi-retirement" (i.e., retiring from full-time work but taking on a part-time job) and "temporary retirements", or sabbaticals, periods without work over the course of a career. Benz recently took a 6-week sabbatical, which not only served as an enjoyable break from her regular job, but also served as an informative preview of what she might want her eventual full-time retirement to look like.

First, the sabbatical allowed her to see the benefits of having "unscheduled time" (i.e., not having each day fully scheduled out in advance), including the ability to spend more time with friends and pursuing her favorite leisure activities, as well as a general reduced sense of urgency. At the same time, she often found that her best days also included an activity that provided her with a sense of purpose, providing her with the realization that she would like to pursue volunteering as well as activities that leverage the expertise she gained in her career. In addition, even on sabbatical she sometimes found it hard to balance 'productive' activities with leisure, often finding that the former crowded out time for the latter. To resolve this, she would specifically schedule leisure activities (e.g., buying movie tickets in advance for a specific showing) to ensure she wouldn't miss out on opportunities for relaxation (while still leaving open the opportunity for "unscheduled time"). Finally, while the sabbatical gave her the opportunity to go on a major trip, it also demonstrated the benefits of "microjoys" (i.e., activities that are not necessarily "bucket list" items but still provide significant pleasure) available during the day, in her case cooking, reading, and walking.

In sum, a sabbatical or other extended break from work can provide the opportunity to 'preview' what retirement might look like without the commitment to permanently leaving one's job. And notably, financial advisors can help support clients considering such an opportunity, whether it is in helping clients plan financially for a sabbatical or in working with them to adjust their retirement goals based on their discoveries during their time away from work!

5 Top Advisor Marketing Trends In 2024

(Susan Theder | Financial Advisor)

While many financial advisors have a "go-to" marketing technique that they've successfully used to win clients, taking a moment to consider whether this tactic could be implemented in a different way, or perhaps adding a totally new technique, could contribute to further client growth. With this in mind, Theder offers 5 opportunities for advisors to boost their marketing success, both in 2024 and into the future.

To start, using a "zero-click" social media strategy (i.e., including relevant content in a social media post itself rather than just linking to a blog post or other content on the advisor's website) can help expand an advisor's reach, as social media companies tend to prioritize posts that keep users on their sites, and better capture the attention of those who encounter the post (by getting the information up front instead of having to click on a link). This strategy can be enabled by Artificial Intelligence (AI) tools like ChatGPT, which can be prompted to summarize a blog post (that appears on the advisor's site) for use in social media posts. Further, given the growing popularity of short-form videos on social media (e.g., on Instagram, YouTube, and TikTok), repurposing written into this format can further help advisors expand their reach and engagement with relatively little effort. Other ideas to boost marketing include creating a strategy for winning referrals from Centers Of Influence (COIs), moving beyond the occasional contact with a CPA or estate attorney to seeking out additional types of COIs (e.g., business succession planning consultants and private college admissions coaches), as well as hosting webinars, which can cover the interests of an advisor's target audience in an engaging format.

Ultimately, the key point is there are many ways for advisors to boost their marketing, from refining current techniques (e.g., by repurposing content in a new way) to adding on a new tactic to increase their exposure to prospective clients. At the same time, given the limits of an advisor's time and marketing budget, leveraging data to consider which marketing techniques will provide the greatest 'bang for their buck' can improve the odds that these new marketing efforts will pay off!

How RIA Prospecting Tactics From The Past Are Making A Comeback

(Abby Salameh | Advisor Perspectives)

Digital marketing tools have gained in popularity in recent years, allowing financial advisors to leverage technology and social media to reach a wider audience of prospective clients. This shift was magnified during the early months of the COVID pandemic, as in-person events became difficult to hold.

Nevertheless, Salameh suggests that the ability for in-person events to provide for greater human connection and a more personalized experience than digital content could make them valuable additions to an advisor's marketing toolkit. For instance, lunch-and-learn style retirement seminars, once a primary marketing tactic for advisors, can allow advisors to demonstrate their expertise and make personal, (literal) face-to-face connections with attendees (and might be attractive to prospects looking to get out to more in-person events). Notably, advisors can leverage technology to improve the effectiveness of these 'old school' events, whether by advertising through Google or Facebook or by using CRM software and email campaigns to keep the conversation going with attendees after the event concludes.

In the end, while in-person events tend to cost more than other marketing tactics (with Kitces Research on Advisor Marketing finding an average client acquisition cost of $19,097 for seminars), advisors who are able to leverage them effectively (perhaps aided by digital advertising and marketing tools) could stand out at a time when many of their peers have moved much of their marketing efforts online!

"Marketing Channel Harmony": The (Completely Free) Secret Weapon For Advisory Growth

(Kelly Waltrich | AdvisorHub)

Advisory firms often will leverage multiple channels, from their website to an email list to social media posts, to get their marketing messages and content out into the world. However, flooding these channels with different messages (e.g., publishing a blog post on tax planning while sending a weekly email newsletter on investment planning) can confuse the intended audience about the most important thing the firm wants them to pay attention to (or the action they want them to take, such as signing up for a webinar or introductory call).

With this in mind, Waltrich suggests that advisors practice what she calls "marketing channel harmony", deciding on the most important thing they want to say and focusing on that message in all marketing content for a certain period of time. For instance, an advisor who is hosting an upcoming webinar on tax planning for retirees could publish a blog post on the topic, include it in an email that includes a link to sign up for the event, and post summaries of the article on social media. In this way, prospective clients will hear the same message no matter the medium they use to connect with the advisor (i.e., social media versus email). Further, by building a library of content on different topics over time, a firm could have ready-made campaigns to deploy when they have an upcoming marketing event or when prospective clients might be particularly interested in a certain topic (e.g., publishing a series of posts on end-of-year tax planning tips in November or December).

In sum, given that marketing content takes time to prepare, advisors will want to ensure that it generates the greatest impact possible with their target audience. And so, by 'harmonizing' content across the different platforms an advisor uses, advisors can ensure that viewers receive the intended message and/or calls-to-action, no matter how they access them!

Fame Vs Influence

(Josh Brown | Downtown Josh Brown)

Some people dream of one day being famous, perhaps attracting millions of social media followers and being recognized wherever they go. At the same time, being famous can come with drawbacks, particularly in terms of a lack of privacy. Which suggests that an alternate path is to pursue influence, which can lead to greater wealth and personal satisfaction.

While many influential people are also famous (from politicians who shape public policy to celebrities who are able to drive their fans to buy certain products), one does not need to be broadly famous to be influential. For example, in the world of finance, while there are a few famous 'celebrities' (e.g., Warren Buffett), there are many more influential individuals who are recognized within the industry for their thought leadership but don't have to worry about being recognized the next time they go to a restaurant. This latter position can be particularly attractive because it gives an individual more control over their own lives, from what they want to discuss (instead of being expected to comment on every development in their field) to shaping how they make money (e.g., being able to speak openly at events of their choosing rather than beholden to sponsors or advertisers). In Brown's case, he decided to pull back from posting regularly on Twitter/X and appearing on just about any media outlet that would have him (which brought him some amount of fame, but not necessarily influence), choosing instead to focus more on his blog where interested readers could opt in to hearing his market commentary (while still making some media appearances).

Ultimately, the key point is that while fame can come with significant downsides, influence can provide the opportunity to make a difference in a discrete field without having to live under a microscope. And in the world of financial advice, while there are likely only a few individuals who are 'famous' amongst the general public (suggesting that reaching this status is challenging, even if desired), there are many more opportunities to be influential, whether in engaging in thought leadership to support advisors in the field or in developing expertise to serve a specific client niche that allows an advisor to recognized as the "go-to" person for their ideal target client!

How Athletes And Entertainers Get Financially Duped By Those They Trust

(Steve Henson and Ashley Lee | Los Angeles Times)

Media outlets regularly publish headlines about the latest celebrity or athlete who fell victim to financial fraud, with the perpetrator often being a trusted relative or friend. For instance, earlier this year it was revealed that Shohei Ohtani's interpreter stole $16 million from the (seemingly oblivious) athlete's bank account to pay gambling debts. And given that such theft and schemes are not new by any means, some might wonder how famous individuals continue to lose millions of dollars in the hands of trusted individuals.

To start, many athletes and entertainers are so focused on their work that they are inattentive to their finances, choosing to outsource financial management to a 'trusted' source, whether a relative (who might in reality be aiming to siphon money off of the wealthy individual) or an external advisor (who might target individuals who achieve sudden wealth and might not know how to evaluate the legitimacy of a financial or business advisor). Further, schemers prey on individuals on both ends of the risk tolerance spectrum: those willing to take high levels of risk are sometimes duped into investing in (fraudulent) business ventures, while those with a low tolerance for risk can be taken by those peddling investments that purportedly offer consistent returns with little downside (e.g., Bernie Madoff). Often, many famous individuals can fall prey to the same scheme, as they recommend it to their friends or teammates (before it is finally exposed).

In the end, while fame can bring significant earnings, it can also make an individual a target for financial predators, some of whom might be a relative or other trusted confidante. Which suggests an important role for (well-intentioned) financial advisors working with wealthy individuals (famous or otherwise), not only in traditional financial planning services, but also in helping these clients evaluate investment 'opportunities' that come their way!

The Fame Motive

(Benedict Carey | The New York Times)

Psychologists have long studied common motivators of human behavior, from the longing for power and influence to the desire for great wealth. More recently, as reality entertainment and social media have become more prominent, researchers have started to look at fame (i.e., an overriding desire to be widely known to strangers) as a potential behavioral influence for many individuals.

While only 1-2% of individuals cite fame as their most coveted goal, a greater percentage report regularly daydreaming about being famous. Researchers who have studied individuals with a distinct desire to be famous often find they have lingering feelings of rejection or neglect (e.g., by friends or family) or an acute appreciation of mortality (e.g., in some experiments, individuals who were reminded that they will one day die tended to fixate on attributes they consider central to their self-worth, which could come from external notoriety). And while there is not necessarily anything wrong with wanting to be famous, one study found that participants who focused on goals tied to others' approval (e.g., fame) reported significantly higher levels of distress (given how elusive it can be) than those who were more interested in self-acceptance and friendship.

In sum, when people express an interest in being famous, there are often underlying motivations, whether a desire for acceptance, acclaim, or validation. Though in reality, the more likely way to gain these things might not be to become famous (especially if a moment of fame is fleeting), but rather through a gradual accumulation of virtuous activity?

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We hope you enjoyed the reading! Please leave a comment below to share your thoughts, or make a suggestion of any articles you think we should highlight in a future column!

In the meantime, if you're interested in more news and information regarding advisor technology, we'd highly recommend checking out Craig Iskowitz's "Wealth Management Today" blog.