Executive Summary
Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a 2-part series from Bob Veres, exploring all the various technology solutions that have emerged in recent months specifically to help advisors comply with various aspects of the DoL fiduciary rule, from workflows for transitioning clients to level fee fiduciary engagements to benchmarking tools to evaluate the "reasonableness" of the advisor's fee and to conduct due diligence on the client's existing 401(k) plan (and the performance and costs of all its investment options).
From there, we have several financial advisor marketing articles, including: how to "repurpose" content to leverage your time doing blogging and social media as a financial advisor; how to rethink client appreciation events as "client connection events" to drive more engagement and referrals; when it's time to consider revisiting your advisory firm's brand; and why at least some types of private client lawyers can be especially good as center-of-influence referrers of high-net-worth clientele.
There are also a couple of practice management articles this week, from alternative strategies to finding advisory firms to acquire (beyond just waiting for advisors to retire), why regulators are actually pushing back on the industry's transition from AUM to retainer fees, and the various ways that "generic" business advice really does not fit the typical advisory firm.
We wrap up with three interesting articles about personal success and productivity: the first is a look at how you can divide your activities of the day/week/month/year into those that give you energy, and those that take away, recognizing that one of the biggest ways to boost your productivity is to adjust the balance in a way that increases your net energy (and yes, I can attest this really works!); the second provides tips on how you can break through if you're finding that your advisory business has plateaued; and the last is a look at how if you really want to make positive changes for yourself, it's better to think not in terms of setting goals but creating new systems and habits for yourself that allow your goals to be achieved.
Enjoy the "light" reading!
Weekend reading for February 18th/19th:
New Tools To Prove You Acted As A Fiduciary (Bob Veres, Advisor Perspectives) - When the Department of Labor's fiduciary rule was published last year, it thrust many financial advisors under a fiduciary rule for the first time, and even those who were already fiduciaries (i.e., those under an RIA) may find greater fiduciary scrutiny than in the past, particularly around proving that the advisor actually acted as a fiduciary. To assist, a growing number of vendors and providers are creating solutions to help financial advisors with various aspects of complying with the rule. For instance, SEI has created a (free to use) "DoL Action Plan Template" to help guide the advisor in going through their client base, and decide whether to move (to a level fee fiduciary relationship), hold (as a commission-based client), or orphan the client (i.e., transition them to a house account, or another advisor) under the new fiduciary structure; the SEI solution even includes workflows that can be loaded directly into RedTail to implement the process, given the transactions, transfers, and client communication that must happen. Another DoL fiduciary solution, for those working with qualified plans, is the Fee Benchmarker tool from Ann Schleck & Co (a subsidiary of Fi360); for $1,000/year, the solution tracks details on how much 260 different firms providing investment advice for qualified plans are actually charging, so the advisor can compare its own pricing against them (segmented by the various types of services, size of plans being served, etc.). Notably, the Schleck/Fi360 tool is just for qualified plans right now, but a comparable version to support IRA rollovers is expected in the spring, and Fi360 also has a Fiduciary Focus Toolkit, which provides IPS template tools that can easily conform to DoL fiduciary requirements (and then assist with portfolio monitoring). In the meantime, Morningstar is also gearing up to deploy an IRA rollover comparison tool, tentatively called the "Best Interest Scorecard", specifically to help analyze an existing 401(k) portfolio's costs and performance (including both the funds the client is in, and the ones that aren't being used but could be, using data from Form 5500s and their acquisition of RightPond last year) and then import that data into financial planning software and archive it in a (compliance) report for the client file. Other tools are facilitating 401(k)-vs-rollover-IRA comparisons by focusing on the relative risk/return characteristics of the two; for instance, PrairieSmarts has SmartRisk Pro (which evaluates comparative drawdown risks), and TradeWarrior (rebalancing software) is rolling out an integration with Riskalyze to help evaluate if client portfolios are on-track for current risk (and if not, help map out what trades would be necessary to get back on track).
DoL Fiduciary Compliance Part II (Bob Veres, Advisor Perspectives) - In a part 2 continuation the prior article, Veres looks at another series of DoL fiduciary solutions rolling out, particularly for the RIA community. New tools that have been released, or are about to be, include: the IRA Fiduciary Optimizer from RiXtrema (an extension of their existing 401(k) fiduciary optimizer), which pulls in data from Form 5500s and investment databases to assess the costs of the available investment options, and then specifically screens for alternatives that can produce comparable performance at lower cost (e.g., lower-cost share class alternatives, or different funds that have extremely high 0.97-or-greater correlations to the existing funds but with a lower cost) as part of an IRA rollover (and also provides guidance on benchmarking the advisor's own AUM fee against competitors to affirm the advisor is receiving reasonable compensation); and record-keeper Professional Capital Services (PCS) offers an AdvisorPlan solution, which also pulls in data on fees the client is currently paying (in a 401(k) portfolio, or commission-based IRA), and then produces a proposal page that includes DoL-required language (i.e., that the advisor will act as a fiduciary) and a side-by-side comparison of the various fees the client is currently paying compared to the advisor's proposed solution (though notably, the software is currently only available for those who use Advisor Trust as their IRA rollover custodian, though PCS may soon make it available externally for a separate cost).
Dominate Your Social Media In An Hour A Week (Jason Hamilton, Investment News) - One of the biggest challenges for most advisors adopting social media is actually producing the content to distribute on social media in the first place. Hamilton discusses the value of "repurposing" content to leverage the time investment of creating it. For instance, the advisor might start by recording a brief 3-5 minute video on a financial topic, which can then be uploaded directly to both YouTube and Facebook. On the YouTube video is created, copy and paste the video link into ListenToYouTube.com, which can turn your video into an audio MP3 file, which can then be posted as an audio-only podcast as well via SoundCloud or Garage Band. Then upload the YouTube video (or MP3 audio track) to Rev, which can transcribe the audio for just $1/minute; review the transcript quickly to make sure it's accurate and readable, and then post that as an article to the blog on your website. Also watch in the transcript for a shareworthy quote or two, which you can then use as the fodder for your social media posts, sharing the quote itself and including a hyperlink back to the video, podcast, or blog post version of the content. And as you build up a small library of such content with quotes, sign up for Recurpost, which can automate the process of sharing them out on a periodic and recurring basis, and over time will fill your social media channels with a steady flow of your original content. You can even create quick and easy supporting images to go with the quotes using tools like Word Swag or Canva (as social media with images tends to get better engagement).
Transforming Client Appreciation Into More Referrals (Julie Littlechild, Absolute Engagement) - As advisors, we do a lot to show our commitment to and appreciation of our clients, including not only the financial planning work itself, but articles, webinars, and even live events to support the client relationship, both as a means to improve client retention, and ideally to also generate client referrals. Yet unfortunately, "passive" client appreciation efforts and activities often don't produce active referrals. To solve the issue, Littlechild proposes an alternative to a client appreciation event, which she calls a "Client Connection Event". The point is to create an event where clients can connect with some solution, or solve a problem, as opposed to just hosting a social gathering over wine and cheese. The virtue of this approach is that not only can a problem-solving-style event be more engaging, but it's more likely to get clients to bring friends and family (i.e., potential referrals), because they may want the problem solved, too. For instance, a client connection event might cover "how to make sure your children make good financial decisions", or "how charity can be part of your financial plan", or "why entrepreneurs need to focus on reducing stress", or "protecting your legacy in a family-based business", and would likely involve an external expert who can help solve that problem (i.e., that the clients can connect with), where you get credit for being the one who brought it all together. Notably, many of the connection-related topics aren't directly associated with financial planning or your services - e.g., the session on "why entrepreneurs need to focus on reducing stress" – but can be a great way to connect with the kinds of potential prospects you're trying to reach (entrepreneurs) by adding value for them.
Is It Time To Revisit Your Brand? (Mark Tibergien, Investment Advisor) - The essence of a brand is that it reflects a certain promise to your clients, and what they can expect from your firm (ideally as differentiated from your competitors). The brand might be something created on its own, or even as part of a name change (for instance, Healthy Choice was originally Diet Delux, and Pepsi Cola was originally Brad's Drink). In the context of advisory firms, Tibergien suggests that firms are increasingly looking at name changes paired with creating a (new) brand, especially for firms previously/originally named after their founders (e.g., Kochis Fitz/Quintile became Aspiriant, Polstra & Dardaman became Brightworth, and Zdenek Financial became Traust Sollus). Though ultimately a brand goes further, and should convey other key aspects beyond the name alone, such as whether the firm is more about innovation or being safe and steady, investment-centric or financial-planning-centric, or tilted towards a particular type of clientele (or not). Ideally, the goal is to stand out and be differentiated, which can help draw in prospects, and even allow the firm to charge premium prices for services (i.e., how 'brand name' drugs charge more than generic drugs for the same medicine). The biggest challenge, though, is just deciding on what the brand of the firm will be, especially when the decision involves multiple partners/owners; in the long run, though, the opportunity is to refine the services the firm delivers to increasingly fulfill its brand promise, which in turn helps the business to evolve in an even more differentiated manner over time.
Private Client Lawyers: Exceptional Centers Of Influence (Russ Alan Prince & Brett Van Bortel, Financial Advisor) - When trying to get new clients, especially high-net-worth clients, referrals from centers of influence are often the best path forward, including from lawyers, accounts, private bankers, and concierge service providers. Prince and Bortel make the case that Private Client Lawyers, in particular, can be an especially good potential referral source, given their focus on estate planning, asset protection planning, income tax planning, and succession planning, that is often complementary to (but not competitive with) the role of the financial advisor. Though notably, not all private client lawyers will be the same in their referral potential; some are technicians, and are highly capable on complex technical matters, but not necessarily good at business development (not getting their own clients, nor referring to you), while others are good rainmakers, some are experimenting with new legal business models (given the downward pressure on legal fees from today's HNW clientele), though the best (from the referral-potential perspective) are the ones who themselves are entrepreneurs trying to build legal businesses, and are most likely to be focused on (cross-)referrals and strategic partnerships themselves. And Prince and Van Bortel note that the nature of the advisor's compensation is important – not necessarily related to our industry issues (around conflicts of interest), but simply because the more hourly lawyers tend to be more transactional and usually don't have as deep a relationship with their clientele (and therefore are less capable of providing referrals). In fact, partnering with private client lawyers and showing them how to improve their own businesses by developing a more relationship-based business model – akin to what financial advisors have achieved with the AUM and retainer billing models – can itself be a good way to form a prospective referral relationship!
3 Non-Traditional Methods For Acquiring A Financial Advisory Practice Or Book Of Business (David Grau Sr., Investment News) - With the number of prospective advisory firm buyers outnumbering sellers by as much as 50:1, it's increasingly challenging for buyers who want to acquire to even find a seller who is willing and ready to sell. Most commonly, buyers sought out the stereotypical seller, a 60-something-year-old advisor who is ready to retire. But now, firms are looking at alternative paths, including: a merger of a similarly-sized organization, which can provide an even more rapid path to size and scale (and the potential of qualifying as a tax-free reorganization in the process); being a provider of buy-sell agreements, taking on a contractual right to buy the advisory firm in the future if/when the founder/owner either dies, becomes disabled, or retires (which admittedly doesn't facilitate an immediate acquisition, but done systematically can create a substantial pipeline of acquisition opportunities over time); or providing a continuity planning solution, which is a formal written contract to assure a smooth transfer of control in the event the advisor/owner must suddenly depart for some reason (where a continuity solution is particularly appealing over a buy/sell agreement for the advisor who doesn't want to commit to retirement over any foreseeable future, though obviously will eventually be unable to work).
The Word That Sets Off Regulators (Bob Veres, Financial Planning) - Veres has long made the case that the future of the financial planning profession will eventually be a shift from AUM fees to retainer fees, given both their ability to facilitate working with a wider range of clientele than "just" those who are ready, willing, and able to delegate their investment management needs, and the reduced conflicts of interest inherent in retainer fees (i.e., a more precise ability to align the actual work of the advisory firm with the value it provides). The problem, however, is that a number of state regulators are surprisingly negative on retainer fees, in some cases going so far as to suggest it wasn't ethical for RIAs to bill clients for any financial advice or planning work beyond managing assets, or that advisors would be deemed to have custody over client assets because they are billing retainer fees. For some regulators, though, the concern about retainer fees is even more straightforward – in the legal world, where retainer fees originated, the retainer fee is placed in escrow, and is only drawn out in pieces to pay for services as the lawyers provide it (and if the lawyer doesn't need to spend as much time as anticipated, the retainer fee may be returned). Yet when financial advisors collect monthly or annual retainer fees, it's more commonly "just" an ongoing payment regardless of actual services provided, with simply the expectation that the client will consume the relevant services, or terminate the advisor as appropriate. Which means, in essence, that there's a serious risk of "revenue churning" with retainer fees, where advisors bill for services, but don't actually provide any services, and just collect/keep the fee. The regulators are even more concerned when the retainer fee is built around the client's total net worth – raising the question of "what service(s) are you really providing for idle/illiquid assets like the client's residence?" One alternative, proposed by the XY Planning Network, is to present the cost as a "fixed annual fee, payable monthly [or quarterly]", for financial planning services, and then provide a list of planning services and/or a monthly or annual client service calendar to substantiate the fee. But to say the least, Veres suggests that if the profession is going to transition away from AUM fees, there may still be a long way to go in educating regulators about why the transition from AUM to retainers really is better for consumers.
6 Ways Business 'Gurus' Can Lead Advisors Astray (Angie Herbers, Investment Advisor) - The world of independent financial advisory firms is unique, in that even the largest independent advisory firms are still "small" businesses by corporate standards (with fewer than 500 employees and less than $100M in revenue), and in the world of business advice this creates serious problems, because the standard advice that applies in "business" doesn't necessarily apply to advisory firm businesses. For instance, large corporations are built to handle a steady volume of employee turnover, and have a willingness to simply remove people who aren't a good fit for the business; in an advisory firm, though, turnover is more problematic, which means it's necessary to do substantial candidate screening up front to ensure (or at least increase the odds of) a good match, and be prepared to invest into employees to develop them. Similarly, large corporations can attract top students out of professional schools with their deep career track and training potential, while advisory firms often must rely more on outsourcing solutions and hire in a more focused manner. Other challenging mismatches between "traditional" and advisory firm business advice include: succession planning, where large corporations often attract people who are driven to rise to the top and become leaders, but owner-advisors often become such out of necessity and must spend more time training and developing their associate advisors down the same path; diversity of goals, as large corporations are typically focused on one core goal (to profitably advance the business' mission), but advisory firms are more complex, as some don't necessarily want or need to maximize profit, or may focus more deliberately on a lifestyle balance instead; and training the next generation of advisors requires a conscious effort into mentoring and development, given that advisory firms don't have the depth to structure formal training programs to support this across the entire organization.
Every High Performer Needs This Productivity Trick (Anna Tsui) - For the typical Type A high-achieving business owner (including most advisors), there often seems to be a never-ending drive to get things done, but for some, the work starts to feel demotivating and/or isn't enjoyable anymore. Tsui suggests the problem is that the individual needs to focus more on tasks they enjoy – or more specifically, the types of tasks that "give you energy". For instance, think about some of the most successful projects or initiatives you've worked on, the favorite people in your life, or the times you were happiest and felt connected to your purpose; they're virtually always situations where you felt energized by what you were doing, as contrasted with business meetings and negative friendships that just drain energy. The key, then, is to consider what tasks and activities give you energy, and then allocate as much of your business time to them as you can, as the energy-giving work will just give you more energy to get it done! In fact, Tsui suggests that the primary cause of burnout itself amongst high-performers is that they push ahead doing too much energy-draining work and not focusing enough on the energy-positive activity. So if you need to break through, start thinking about your life, the people in your life, and the tasks and work you do, in terms of what's a net-energy-gainer vs loser... and then figure out what it is you can trim from your business calendar, and even your social circle and your lifestyle, to reduce the energy-draining toll and shift your day to a net energy increase.
What To Do If Your Advisory Practice Has Plateaued (Hoon Kang, Elliott Bay Advisors) - In the ongoing process of growth, advisory firms often hit walls where they stop growing and must make changes to move forward. Kang suggests five tips to help advisors who may have hit the wall take the steps necessary to break through to the other side, including: commit to delegating non-essential tasks, and really focus yourself on doing what your job in the business should be (i.e., what you personally do best); make important decisions decisively (it's challenging, but wavering on decisions, or making them and then retracting your decision, can quickly get the business mired and unable to move forward); make decisions rationally, recognizing that the growing business will impose an emotional toll on you, but that you need to minimize making emotional decisions (for instance, by recognizing that the business must grow by hiring quality people and delegating tasks and authority to them, and not just feel like you're 'losing control of the business' by expanding your team); commit to fully aligning yourself with the firm's strategic vision (as it's clarity of what you're building and where you're going that does the most to free you to focus on growth and not waste time, talent, and resources); and recognize that it's up to you to set the tone in the business by creating a positive atmosphere for the business (even when you're personally feeling negative at the time).
Don't Set Goals For Yourself: Instead, Create Systems That Make It Easy To Succeed (Khe Hy, Quartz) - One of the fundamental problems with setting goals, especially personal goals, is that they're very hard to achieve when they require us to make changes... at least, unless we specifically consider whether/how we're going to change our behaviors and habits to achieve the goal. Which in turn means the real goal is not about the goal itself, but what must be changed in your habits in order to achieve it; in other words, it's not really about the goal, but about instituting the new system that will allow the goal to happen. For instance, losing 10 pounds is actually about a system of eating less (or healthier) and exercising more, running a marathon is really about creating a systematic training regimen, etc. Given this dynamic, Hy decided not to institute New Year's resolution goals, but instead to make systems changes, broken into four areas: micro-habits, intentions, a success statement, and an essence statement. For instance, in the context of micro-habits, Hy focused on specific tendencies to change, such as "Eat less heavy lunches; they drain me of my energy", and made a specific plan that in the future, particularly when eating out, to specifically target ordering an appetizer and a salad as an entree; similarly, "improve quality of sleep" is paired with new habits like "Buy a physical alarm clock, and keep iPhone out of bedroom". The next category was intentions, which are meant to be bigger than micro-habits and changing less frequently, but still require specific plans, such as "Develop more unique ideas, by reading fewer blog posts and more physical books" or "write a book by committing 1-2 productive hours in the morning to working on it, and prioritize the day around that". The third layer was developing a personal success statement, and recognizing that it may change over time (for instance, many people pursue money and status in their early lives, and then recognize later that it's other more intrinsic factors that are more personally rewarding); by having an articulated success statement, but one that is not purely fixed, it's possible to (re-)evaluate your environment to see if it fits your success statement, and if not, decide how you'll change (either the environment, or the success statement!). And the last is an essence statement – the values and beliefs that best represent your life philosophy, and can be a form of ongoing check-in about whether you're really living your life the way you want. To see how Hy has implemented this, you can check out the Trello board he made to track it.
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.
Thanks for doing this, Michael, I know it takes a considerable amount of time. I especially liked the article titled, “Transforming Client Appreciation Into More Referrals.” Lot’s of take-a-ways that we can start doing TODAY. Thank you.
Happy to be of service, Tyler! 🙂
– Michael