Executive Summary
Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the buzz that last-minute changes to the pass-through provisions of the proposed Republican tax plan could have a major impact on broker-dealers and RIAs, given that the version as written would have a substantial bias for independent broker-dealers over employee brokers (as the former would be eligible for favorable pass-through treatment while the latter would not), and would present significant challenges for large RIAs (that may struggle to raise capital given their less preferential tax rates than other industries). With a final tax plan due "imminently" soon, we'll see what the final outcome will be.
Also in the news this week was a fascinating consumer study, which finds that the rise of "robo-advisors" and digital advice tools isn't causing consumers to move away from human financial advisors, and instead is leading self-directed investors to adopt a combination of human and digital solutions – the first indication that the rise of digital tools could actually be a boon for human financial advisors (particularly those positioned to add value on top of what increasingly sophisticated digital tools can already provide to consumers directly).
From there, we have several articles about (digital and content) marketing for financial advisors, including guidance on how to effectively design a real lead-generation process on your financial advisor website, the typical content marketing mistakes that most financial advisory firms make when they get started with digital marketing, how advisors need to focus more on the "triggers" that make prospects actually seek out a financial advisor in order to drive more new business, and some ideas about how advisors can change their marketing in a world where client referrals appear to be on the decline.
We also have a few practice management articles this week, from a look at the recent Investment News Advisor Compensation benchmarking study that shows financial advisor compensation is up significantly (good news for advisors) but that growth is declining (an ominous sign for many firms), to a discussion of the recently emerging trend of large RIAs forming their own subsidiary broker-dealers (to manage old legacy B/D business, or even to facilitate the offering of alternative investments to new clients), and a discussion of whether the introduction of private equity firms to the RIA space could ultimately threaten their growth trends by introducing new conflicts of interest (in a world where RIAs thus far have thrived in part from their sheer lack of conflicts relative to other advisor business models).
We wrap up with three interesting articles, all around the theme of managing your personal productivity and creating a structured schedule: the first explores how the classic 8-hour workday may be an anachronism of the modern world, as while it was a humane change to long factory hours, in the modern world of knowledge-based work, a structure of 1-hour-on-and-15-minute-break appears to be far more conducive to productivity; the second looks at how structuring your day can help to facilitate better personal productivity when working from home; and the last discusses how the "ideal structure" for your day varies dramatically depending on whether you're a "maker" (a creative type, who needs long blocks of uninterrupted time) or a "manager" (who needs a highly structured schedule of short meetings to put out all the necessary fires and manage a team in the right direction)... and the conflicts that can arise when makers and managers don't respect the fact that the other has a very different ideal schedule.
Enjoy the "light" reading!
Weekend reading for December 16th – 17th:
GOP Tax Plan Could Bring Upheaval For Broker-Dealers (Robert Schmidt, Bloomberg) - As the Republican tax plan heads into the final stretch, broker-dealers are raising concerns that the new pass-through provisions could create new tax conflicts between the employee and independent broker-dealer models. At issue is the fact that employee brokers who are compensated via W-2 income must report it as ordinary wage income, but brokers under an independent broker-dealer can potentially route at least some of their income through pass-through entities, which makes them eligible for the new 20% deduction for pass-through income. Notably, under the original proposal, the benefits would be limited for service companies (which includes financial advisors), but an exception-to-the-exception would allow the pass-through business deduction for anyone earning less than $250,000 (for individuals, or $500,000 for married couples) – which would render the overwhelming majority of independent brokers eligible for the deduction, while employee brokers would not be. If passed in its current form, the legislation may drive even employee-based broker-dealers to try to recharacterize their employees as independent contractors, or risk seeing more employee brokers defect to independent broker-dealers that would naturally enjoy a higher "payout" in the form of better tax benefits. Notably, the pass-through provision is also creating concerns amongst the larger RIA community, too, where the concern that classifying large service businesses could actually limit their access to investor capital, or even create greater-than-100% marginal tax rates on employee-owners (under some versions of the proposal). It remains to be seen whether the pass-through rules will be substantively changed in the final version given these concerns, as a number of financial services organizations have been lobbying to fix these issues. With a final version expected "imminently", we'll know soon enough.
41% Of Households Mix Digital & Human Financial Advice (Investment News) - A new consumer study from Hearts & Wallets finds the growth of digital advice tools isn't causing consumers to abandon human financial advisors; instead, it's causing consumers to abandon pure self-directed solutions for a combination of human and digital advice instead. These "hybrid" consumers, which Hearts and Wallets calls "General Contractors" (as opposed to Self-Directed or Delegators) who use a mixture of paid and free live professional advice, digital advice, and their own insights, now account for 41% of all U.S. households. And notably, the trend is especially significant amongst younger affluent individuals, with 75% of investors under age 45 with over $250,000 blending human and digital advice, and a whopping 85% of those under age 35 with more than $1M of AUM. Of course, the caveat to this trend is that even as it emerges, there's no doubt that consumers are blending human and digital advice in a wide range of different ways, suggesting that more research is needed to truly understand the opportunities. Nonetheless, the digital shift appears to be on in full force, with almost half of consumers aged 21-39 even using social media for investing information.
How To Create A Successful (Digital) Lead-Generation Process (Crystal Butler, Advisor Perspectives) - Most financial advisors struggle to actually get any bona fide prospect leads from their websites, which Butler suggests may simply be because most advisors don't actually take advantage of the available opportunities to capture website leads. As the reality is that most consumers won't necessarily be ready to go directly to the advisor's "Contact" page right away... and even if they are, it's not always apparent to the consumer that that's the best way to begin an engagement with the advisor. Instead, the best practice is to actually create a "Call To Action" (CTA), or ideally several of them throughout the site, that makes it clear what the consumer should do next in the process, whether it's a "Primary" call to action that you most want them to take (e.g., to schedule a meeting with the advisor), or a "Secondary" call to action for those who aren't ready for the primary (such as simply to signing up for the firm's mailing list, which allows the advisor to drip market them in the future). Of course, the reality is that even with a secondary CTA, not all consumers are ready to just turn over their email address or other contact information, which is why it's often necessary to give them something in return – a "lead magnet" that attracts them to the secondary CTA, such as a white paper, free report, access to a webinar, or even a free portfolio review or introductory call. Once you have the CTAs in place, the next step is to begin to A/B test them – in other words, try different versions of those CTAs (version "A" and version "B"), to see which one actually generates better engagement and results, and continue to iterate on them to make further improvements. Notably, once you have created a better lead generation process on your website, it also becomes easier to engage in social media – because at that point, the whole goal of social media is to lead people back to your website... because that's where you have built the CTAs to generate the real lead generation results.
Content Marketing Mistakes Most Financial Planning Firms Make (Kali Hawlk, Creative Advisor Marketing) - As more and more financial advisors begin to engage with content marketing, Hawlk notes that a number of common mistakes are beginning to emerge. First and foremost is the simple reality that for most financial advisors who have expert knowledge, creating content that states the facts – e.g., a detailed article about Roth IRAs – is relatively easy to create (since they know the facts and just have to write them down), but those facts are known to lots of other financial advisors as well, all of whom write a similar article. Which means if you really want to differentiate your content, it has to be compelling... which means showing some empathy or emotion, or ideally putting forth your own unique perspective, because that's what makes it different than every other facts-based technical article. (For instance, instead of just talking about the rules of Roth IRAs, explain common mistakes that people make, or even challenge the conventional wisdom.) Other common mistakes include: "only talking and never giving" on social media (i.e., don't just use it to distribute your content and talk about yourself... you also have to give, by engaging with and communicating with others, and supporting other people's great content, too); not having a broader strategy or plan of what you're really trying to accomplish (i.e., what are you actually trying to accomplish with your content marketing? Do you even know exactly who you're trying to reach in the first place?); using the wrong tactics to reach specific goals (for instance, you'd engage in very different strategies if you wanted to achieve reach and brand awareness, as opposed to just trying to convert 2 new clients in the door every month); and being afraid to experiment (because the reality is that even if you're great at marketing, you won't always be able to predict exactly what does and doesn't resonate, so it's crucial to test, measure, and iterate to find what really works over time!).
Why Referrals Are Down And What To Do About It (Dan Richards, Advisor Perspectives) - Historically, referrals were the primary way that financial advisors attracted new clients, often simply as a "reward" for a job well done with client. In recent years, though, there's more and more buzz (and actual industry data) that "referrals are drying up", which raises serious questions about whether this is just a temporary slump that advisors should weather, or if it requires a broader change in strategy. Richards suggests that the shift will require at least some change in strategy, recognizing a number of significant shifts in the nature of referrals over the past decade, including that as more and more firms give financial advice there are fewer unattached investors looking to move, the rise of financial advice is making it harder and harder for consumers to differentiate amongst advisors, and the simple fact that since the market crash in 2008 some clients may be scared to refer simply because they don't want to be blamed and risk jeopardizing a friendship if the market declines after the referral happens! So what should advisors do? The key is to reduce clients' perceived risk of making referrals in the first place – by making your advisory firm more targeted into a niche or specialization, so it's clear that you are the "low-risk" leading expert in the domain, effectively reducing a referrer's fear of making a referral and having a bad outcome for their friend or colleague. And don't forget to do the follow-up necessary to acknowledge and thank referrers for making a referral as well; don't underestimate how much simple gratitude can help support a single referrer in referring again!
It Pays To Be An Advisor (Mark Tibergien, ThinkAdvisor) - In the latest 2017 edition of the Investment News Advisor Compensation and Staffing Study, an ominous trend is emerging: revenue growth rates are declining (from 16% growth in 2013 to only 8% in 2015 and just 5% last year), even as advisory staff salary growth is accelerating (with lead advisor salaries up 23%, service advisors up 14%, and support advisors up 13%). The trend is especially notable given that there has been no recent bear market or slow economy to account for the slower growth, even as a growing shortage of advisors and declining productivity appears to be accelerating the growth in costs. Particularly since, even with technology advances, the typical advisor still only manages about 60 to 80 close relationship (as with 1,800 available productive working hours at best, spending just 20 hours per year per client would lead to a 90-client limit, and most advisors don't even have that much client-facing time). Which means if firms don't keep hiring and growing their headcount, they may hit capacity and stop growing simply because they can't effectively take on very many new clients anymore. Even more striking, though, is that basic productivity metrics aren't improving anywhere in the firm – as in 2012, the typical advisor managed $517,000 of revenue and average revenue per staff was $235,000/employee, while in 2016 the numbers were $478,000 and $230,000, respectively. Suggesting that firms are either failing to effectively leverage technology advances, and/or are feeling compelled to do even more for their clients just to maintain relationships (but eroding their productivity in the process). In the meantime, advisory firms have not gotten very good at marketing and establishing a clear positioning statement (perhaps due to their historical reliance on referrals), and, as a result, lack systematic business development processes, which causes growth to lag further. Nonetheless, the fact that financial advisor compensation is rising rapidly suggests that more opportunities are emerging... at least at a small subset of advisory firms that have figured out how to manage capacity, maintain productivity, and grow.
In A Twist, RIA Firms Form Their Own B/Ds (Dan Jamieson, Financial Advisor) - While the total number of broker-dealers in the U.S. has been waning for years, driven towards consolidation in the face of compliance and cost pressures, and many B/Ds surviving only by holding onto the "legacy" clients of advisors who have long since converted to an RIA, some independent RIAs are now reportedly forming their own B/Ds to handle their legacy clients in order to cut out their prior broker-dealers altogether. The driving force seems to be the challenge that many broker-dealers insist on imposing due diligence and compliance oversight on their reps with "outside" RIAs, even if the reality is that the advisor is primarily an RIA and their broker-dealer is really the smaller "outside" business. In some cases, though, the goal of the broker-dealer is not to "just" handle legacy trail business for existing clients, but also to implement new investments, particularly certain types of illiquid alternatives that arguably are better suited to a single-event commission transaction (e.g., a placement fee from a private manager) rather than an ongoing advisory fee anyway (given that, once purchased, the investment is long-term and illiquid, so there isn't anything to manage on an ongoing basis). Of course, there are still regulatory risks and burdens of running a broker-dealer, which means the solution isn't for everyone, but there are options to create a "limited purpose" broker-dealer under FINRA rules with streamlined regulatory requirements, which can be feasible for at least a "larger" multi-billion-dollar RIA.
Will Success Spoil Indie RIAs? (Bob Clark, ThinkAdvisor) - With the recent massive influx of private equity capital to the RIA community, from Genstar Capital's buyout of Mercer Advisors, KKR and Stone Point Capital's investment into Focus Financial, and more recently Thomas H. Lee Partners' $100M recapitalization of HighTower, it's hard to deny that the independent RIA has truly become a meaningful and legitimized player in the financial services landscape. Yet Clark raises the question of whether so much growth in the RIA community is actually a good thing. After all, the introduction of private equity to the RIA business model brings substantial opportunities for investment, consolidation, and achieving new economies of scale, which could further spur the growth of the RIA movement. But having private equity ownership puts RIA executives in the position of balancing the demands of their fiduciary duty to clients, and the return demands of private investors... especially when private investors have other financial services businesses, for which they may be hoping the RIA will "cross-sell" into, in what may seem like an appealing "synergy" but also introduces a substantial conflict of interest. Not to mention the fact that private equity firms tend to have shorter-term goals than privately owned RIAs with long-term-oriented founders. Which means, at a minimum, if an advisory firm is considering outside capital, it's crucial for the advisory firm to really vet its investor, and what kinds of strings may be attached, and conflicts may be introduced, by the new owners/investors.
4 Ways To Make An 8-Hour Workday Truly Productive (Travis Bradberry, Heleo) - The classic 8-hour workday was created during the industrial revolution as a way to limit the number of hours of manual labor that workers could realistically endure on the factory floor... which, at the time was a more humane approach to work, but arguably is poorly suited to today's more knowledge-based and creative work. In fact, when it comes to knowledge-based work, a recent study found that what impacts people's cumulative productivity for the day the most is not how many hours they way, but the way in which they structure their day. Specifically, the research found that those worked for about an hour at a time, and then took 15 minute breaks (or more precisely, an ideal work-to-break ratio of 52 minutes of work to 17 minutes of rest), were the most focused and productive. In essence, this schedule allows us to be 100% dedicated to a task that needs to be accomplished – and actually be able to focus – and then get the break we need to refresh. Or stated more simply, our brains seem to be built to only sustain a limited duration of about an hour of focused energy, before it must be refreshed... but it can be especially productive if you are able to focus for that hour. Accordingly, this means optimal productivity is all about breaking your day into hourly intervals (close enough to 52 minutes), where you "respect" the hour by trying hard to stay focused for that hour, knowing that a rest is coming. And then when the time comes, take a real rest, like walking or reading or chatting, not just pausing to answer work emails or phone messages, which is just another form of work (that doesn't give the body and brain the recharge it needs).
How To Stay Focused When You're Working From Home (Elizabeth Grace Saunders, Harvard Business Review) - The opportunity to work from home, with no commute, no dress code, and no "drive-by meetings" from colleagues, may seem like a dream for many... until the practical realities set in when it comes to trying to be productive from a home environment where personal obligations can easily distract you (from taking a few minutes to do a load of laundry, or stopping work early to hang out with a friend because no one is there to see you "leave" early). So how can you ensure you're actually productive when working from home? Saunders suggests that the key is to actually treat your home office as a real work environment – which means establishing "working hours" (because when there are otherwise no boundaries between work and home/personal life, setting "Office Hours" for when you're actually working, or not, is essential to create focus for yourself), formally structuring your work activities for the day (e.g., set half- or full-days to be "meeting free" days, and then clearly identify your primary tasks to accomplish during that uninterrupted time window from home), and set clear boundaries with others (which means educating your friends, family, and other acquaintances that your work-at-home days aren't simply home days, they're real work days, and if you have to make an exception, set a concrete time for how long the interruption will last, and schedule around it like any other meeting on your calendar). And don't be apologetic to others for explaining your work-from-home limits, just as you wouldn't be in pointing out your work-at-work limits, either.
Maker vs Manager: How Your Schedule Can Make Or Break You (Shane Parrish, Farnam Street) - Novelist Haruki Murakami was known for a rigorous schedule that started with waking up at 4AM to write for 5-6 continuous hours, then spending afternoons running or swimming, relaxing in the evenings, and going to sleep by 9PM to start the cycle anew. By contrast, social media entrepreneur Gary Vaynerchuk is known for a day that beings at 6AM, and is broken into tiny slots (with meetings as short as 3 minutes), with calls (and social media postings) inserted between the slotted meetings, while he manages a large team of people. The key distinction, though, is not merely that both of them have significant structure to their days, but that the substantively different nature of their work necessitates different types of schedules. The distinction, which originated in a blog post by Y Combinator's Paul Graham in 2009, is that there's a fundamental difference between how "makers" (creative types) versus "managers" (who oversee other people) manage their schedules. Because a manager's day tends to be broken up into tiny slots, each of which is allotted to handle an issue (or often to put out a fire), and the structure is necessary just to ensure any productive work gets done beyond the reactive flow. However, managers don't have a need for "deep focus" creative tasks, just a series of fast (and hopefully smart) decisions. Makers and creative types, on the other hand, do need long blocks of time reserved for focusing in order to really get their creative work done (from the stereotypical reclusive novelist, to the Red-Bull-drinking Silicon Valley software developer with headphones on). Notably, though, this can create real conflicts, as the maker's schedule isn't feasible for the manager, and the manager's schedule is very disruptive to the maker. And for those who actually have a role in both, it's essential to be able to create the structure for each – bundled manager-style meetings where necessary, and long "scheduled" stretches of uninterrupted time for creative work. The bottom line, though, is simply to recognize what type of work (or job) you do, the importance of structuring your time to achieve it... and have the perspective to realize that your opposite type may have a very different kind of ideal schedule for themselves!
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.
Michael, another great set of weekend reading! Excellent job. Thanks for putting this together.
The Plain-Sight Marketing Opportunities Advice Firms Often Completely Miss
linky no worky
http://webcache.googleusercontent.com/search?q=cache:25KoF7m2TLgJ:www.audere.com.au/the-marketing-opportunities-advice-firms-miss/+&cd=1&hl=en&ct=clnk&gl=us&client=firefox-b-1-ab