Weekend Reading for Financial Planners (Feb 25-26)

Author: Michael Kitces

Team Kitces

Michael Kitces is Head of Planning Strategy at Buckingham Strategic Wealth, which provides an evidence-based approach to private wealth management for near- and current retirees, and Buckingham Strategic Partners, a turnkey wealth management services provider supporting thousands of independent financial advisors through the scaling phase of growth.

In addition, he is a co-founder of the XY Planning Network, AdvicePay, fpPathfinder, and New Planner Recruiting, the former Practitioner Editor of the Journal of Financial Planning, the host of the Financial Advisor Success podcast, and the publisher of the popular financial planning industry blog Nerd’s Eye View through his website Kitces.com, dedicated to advancing knowledge in financial planning. In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.

Read all of Michael’s articles here.

Weekend reading for February 25th/26th:

At E[Money]-Marriage Of Schwab And Fidelity At T3 (Graham Thomas, RIABiz) - Last week was the Technology Tools for Today (T3) Advisor technology conference, which included a number of big announcements... including the news that Fidelity-owned eMoney Advisor will be integrating to Schwab OpenView Gateway, in a move that both companies seem to hope will finally lay to rest the concerns about eMoney Advisor's subsidiary independence from Fidelity since its acquisition two years ago. Though the eMoney-Schwab integration news was hardly the only buzz; other notables included: the roadmap for Fidelity's Wealthscape and Automated Managed Platform (AMP) robo-advisor-for-advisors solution; AdvisorEngine rolling out new services (and acquiring WealthMinder); a new "collaborative fact-finding tool" from Advicent; a quasi-TAMP offering from an integration between Addepar and FolioDynamix; and new product announcements from Riskalyze and Orion.

Riskalyze Expands Beyond Profiling To Become A TAMP Supermarket (Craig Iskowitz, WM Today) - Last fall, Riskalyze raised a whopping $20M in Series A funding, and at last week's T3 Advisor Technology conference, they revealed what they're doing with it: building a TAMP supermarket through its "Autopilot" robo-onboarding automation platform. Dubbed the "Autopilot Partner Store", advisors regardless of custodian will be able to select third-party manager models and strategies that can be managed through new Autopilot rebalancing and trading tools, effectively re-creating a TAMP/SMA manager network akin to the recent iRebal Model Marketplace, or Envestnet's core business model (though Riskalyze, at 19,000 users with its risk tolerance software, is still far smaller than Envestnet's reported 45,000 advisors on their managed accounts and technology platforms). Notably, the Autopilot store has substantial upside potential for Riskalyze in particular, because the solution is priced in basis points (10 - 15bps announced at T3), which allows for far more revenue growth and upside potential than "just" their $145/month Riskalyze Pro technology fee. But the shift from a risk tolerance assessment tool into a portfolio management solution puts Riskalyze into competition with a new slate of players, including Tamarac, Black Diamond, and Orion, as well as the RIA custodian platforms like Fidelity WealthScape, TD Ameritrade's iRebal, and Schwab's PortfolioCenter and coming PortfolioConnect next-generation solution. And Iskowitz suggests that at some point, Riskalyze may even change its name if/when/as it shifts from risk assessment tools to portfolio management solutions (as having "risk" in the name isn't as appealing for the latter as it was/is for the former!). Also announced by Riskalyze at T3 was a new $245/month Riskalyze Premier solution as well, which will include a client dashboard that allows them to view their accounts and holdings (and compare them to their risk number) with new "asset sync" (account aggregation) capabilities, services for employer retirement plans (so those in the qualified plan marketplace can easily use Riskalyze across all the plan participants), and more automated/digitized account opening processes (leveraging tools like DocuSign) tied directly into the Riskalyze workflow.

VCs Back Wealthbox With Another $6M As Improbable Play To Upend CRM Giants (Jessica Devenyns, RIABiz) - Despite launching barely 3 years ago, Wealthbox CRM has managed to gain top-4 market share amongst independent RIAs against existing players like Redtail, Salesforce, Dynamics, Junxure, and others... and on the basis of that growth, recently obtained a healthy $6.25M round of venture capital to scale up further. What's unique about Wealthbox is its Facebook-style "activity flow" timeline, that allows advisors to stay up to date on all the goings-on inside the firm and the interactions with clients. And given the ubiquitous nature of social media platforms these days, the "familiar" interface means Wealthbox has been able to accelerate adoption and make the software easier to use, even amongst non-tech-savvy advisors, although Wealthbox has also become an indirect generational play as older often-less-tech-savvy advisors retire and are replaced by younger more-tech-savvy advisors who will already be familiar with the Wealthbox style of software interface. (In addition to the fact that the software also integrates directly with social media platforms as well - for instance, by being able to easily import all LinkedIn contacts directly into becoming Wealthbox contacts.) Notably, in addition to Wealthbox CRM itself, parent company Starburst labs is also using a portion of its capital to develop several other web app products as well, including InvestorSay, PaperTrade.io, and Wealthbase.

EverPlans: A Tech Tool That Could Be An Estate Planning Game-Changer (Bob Clark, Investment Advisor) - Everplans was originally launched as a content site to help people with questions about estate planning... roughly akin to what TheKnot.com does for those planning a wedding, but at the other end of life. However, after founder Abby Schneiderman's brother was killed in a car accident - without having a full estate plan in place - she realized there was a more substantial consumer need for not just education, but an actual tool to help facilitate the execution of an estate plan and the transition of key information after death. As a result, Everplans was re-designed into a kind of digital vault for consumers of all their potentially-estate-planning-related details, from contact information of key people, logins and passwords of key accounts, key documents from house deeds and mortgages to powers of attorney and the Will itself, along with doctor and medical information, financial account information, and post-death directions (e.g., guidance on funeral arrangements, thoughts and legacies, etc.). Users can assign "deputies" who have the ability to access some or all of the information (based on permissions granted by the user), to help access key information as needed in the event of incapacitation or death. And while the platform started out as a direct-to-consumer solution, 18 months ago it expanded to offer "EverPlans Professional", a version of the platform that advisors pay for directly (with a licensing fee of $2,500 to $3,500/year) and then provide for free to their clients as a value-add and a way to facilitate deeper conversations about estate planning. Although the software is now gaining new momentum, as enterprising advisors are using it not only to enhance value with existing clients, but offering it to their family members and even as a free giveaway in seminars, in essence using the software as a prospecting and marketing strategy (as prospects both get perceived value from the firm, and give the advisor an opportunity to establish or deepen a relationship as they assist the prospect in using the software).

IBM Gives Watson a New Challenge: Your Tax Return (Steve Lohr, New York Times) - In recent years, IBM has been trying to leverage its Watson artificial intelligence solution, taking on challenges ranging from helping doctors diagnose cancer, to consumer brands using the software to help answer questions of shoppers. Now, IBM has announced a partnership where Watson will assist H&R Block's 70,000 tax professionals across their 10,000 branch offices (which collectively file about 11 million tax returns). From a strategy perspective, the partnership is notable because IBM is not aiming to deploy Watson directly to consumers (as many other artificial intelligence startups have, along with other major technology firms like Apple's Siri, Google's Assistant, Amazon's Alexa, and Microsoft's Cortana), and instead is looking to leverage its artificial intelligence with and through corporate partners. In the H&R Block partnership, the starting point was feeding Watson 74,000 pages of Federal tax code and thousands of tax-related questions culled from H&R Block's own data over decades of preparing tax returns, and tax professionals were then brought in to "train" Watson (e.g., approving when Watson suggested a smart question for a particular tax filer, and correcting it when a question was off base). Ultimately, the goal in the context of tax preparation software is for Watson to prompt H&R Block's tax preparers to ask the right questions and find opportunities to generate a larger tax refund or reduce a client's tax liabilities... in addition to making tax preparation "more engaging and interactive" by showing consequences on a separate screen how Watson is analyzing their situation and making recommendations.

Meet The Competition (Joel Bruckenstein, Financial Advisor) - More and more financial advisors are now looking to adopt "robo" tools in their practice, at least to serve their smaller client accounts, but Bruckenstein notes that most advisors have no familiarity with the direct-to-consumer robo-advisor offerings they're actually competing with. Accordingly, Bruckenstein reviews the solutions from E*Trade and Fidelity (deliberately choosing the offerings from larger well-known brands that will have the marketing budget to get them into the hands of consumers). In the case of E-Trade, their solution is called "Adaptive Portfolio", and has a $10,000 investment minimum and a 30bps annual management fee (waived for the first 6 months, and with a cash credit starting at $100 for those who deposit $10,000 in new funds, and up to $1,500 for a $500,000 deposit or transfer). Adaptive Portfolio begins with a questionnaire about goals (retirement, education, long-term growth, or major purchase), how much you'll save/investment, time horizon and anticipated withdrawal period, and some questions about risk tolerance, which are blended together to offer a recommendation of one of six portfolios (from conservative to aggressive) that can be all-ETF or a blend of ETFs and mutual funds (at the investor's discretion). Notably, Bruckenstein points out that virtually every screen in the process also has a "Call Us" link, a chat link, and an FAQ link, in addition to lots of "?" labels that with the click of a mouse provide further detail/explanation of key terms. On an ongoing basis, the portfolios are rebalanced for free, but Adaptive Portfolio does not offer tax-loss harvesting. In the case of Fidelity, their solution is called "Fidelity Go", and it has a $5,000 minimum (must be funded with cash), and a 35bps advisory fee (reduced with a "variable fee credit" to the extent that Fidelity also earns money from any affiliate companies, such as through the use of Fidelity managers or Fidelity funds, which simply ensures that Fidelity's net fee is always steady at 35bps). The process for Fidelity Go is roughly similar - it begins by asking when you were born (for your age), the account details (and whether it's for retirement or something else), the tax-status of the account (taxable or tax-advantaged), your other household income (to estimate potential tax situation), anticipated upfront and ongoing contributions, and a self-assessed ranking of risk tolerance. Clients are placed into one of 7 portfolios (again varying from conservative to aggressive). Not surprisingly, there were some differences in the underlying ETFs and mutual funds recommended between Fidelity and E*Trade. Though ultimately, Bruckenstein suggests that advisors can also still differentiate based not only on the particular investments they use to implement their models, but also deeper tax management (neither platform offer tax loss harvesting), and the depth of the data-gathering process (e.g., neither platform assesses risk tolerance as deeply as Riskalyze or FinaMetrica).

To Instantly Connect With Your Prospects, Use The Magic Question (Dave Zoller, FPA Practice Management Blog) - One of the key challenges in getting started with prospective clients is understanding what their needs and concerns are, and how you can actually help them. Except sometimes, prospects can't even effectively articulate exactly what they're looking for. Zoller offers a suggestion of an initial question to ask prospects to delve into this issue, adapted from the "Magic Question" from business coach Dan Sullivan (who wrote a book about it). The question is: "If we were meeting three years from today, and you were looking back over those three years, what has to have happened in your financial life for you to feel happy with your progress?" Zoller notes that the question may feel unusual, but it can be highly effective. It's straightforward enough that almost any prospect can answer (though they may need a moment to think about it, and if they really can't answer it, it's a good indication they won't be a good fit!), it focuses on the prospect and the results they want to achieve, it helps them to gain clarity about their own problems and how they define success, and it encourages them to think big and think positively and aspirationally. You can follow up the question with a few more to delve further, including asking about what the biggest challenges are the prospect will have to face to achieve the desired progress, the opportunities to focus on to achieve those results, and what role the prospect thinks the advisor should play during those three years. So the next time you're meeting with a prospect – either in person, or even over the phone – give the question a try, and see how it goes!

Should I Hire A Marketing Expert? (Ingrid Case, Financial Planning) - In the past 5 years since hiring a marketing expert, Dana Anspach of Sensible Money has seen her advisory firm grow from $33M of AUM to $115M, and her website jumped from garnering 10 client inquiries a year to more than 100 annually. The key change was working with a branding coach to identify the core brand values of her business, and then redesigning her website to make it truly more engaging for her target prospects, including the ability to watch a video, fill out a questionnaire, sign up for her newsletter, or download some free articles, which helps form a connection to website visitors that ultimately leads them to getting in touch about doing business. Ultimately, the total cost was more than $50,000 upfront, and now about $5,000/year for ongoing site hosting and maintenance, but the investment was more-than-worthwhile given the financial results. A similar process with an outside consulting firm worked for Vincent Barbera of Newbridge Wealth Management, though only after a first failed attempt with a marketing firm that had them doing local event-based marketing (e.g., co-sponsoring club boxes at the NHL draft); the version that was successful involved taking a focused look at who, really, was the firm's ideal client, to whom they can provide the most value, and then focusing in on that niche, which in Newbridge's case ended out being midlevel executives who had been in the corporate world for 15-20 years and are now trying to figure out how to make a career transition without damaging their family's finances. The virtue of an outside marketing expert is that, done well, the consultant should be able to help the advisor articulate their own unique value for their ideal client, and then adapt the advisor's website and other marketing strategies to make the firm attractive to that target clientele.

Which Client Niches Are Set To Grow? (Dan Weil, Financial Planning) - According to a recent survey by CEG Worldwide, 56% of advisors now specialize in some kind of client niche, with the most common niches include retirees, pre-retirees, small business owners, baby boomers, and profession-based niches like physicians, lawyers, architects, or athletes. Given that financial wealth itself is concentrated amongst baby boomers approaching or in retirement, and that those stages of life demand specialized expertise (not just on accumulating retirement accounts anymore, but how to draw them down, and also related issues like Social Security decisions and the fact that many retiring boomers are also dealing with their own aging parents), it shouldn't be surprising that they're the most popular niches. Given the sheer number of baby boomers, though, there still appears to be room for more to specialize there, though other even-more-focused niches are on the rise as well; for instance, one advisor just specializes in pilots, and learns not just about their general financial issues but industry-specific challenges like how their compensation is determined, allowing for effective differentiation. And as wealth shifts across generations, it's also likely that other generations will become niches unto themselves, including Millennials. Notably, though, the whole point of having a niche is to really focus and specialize in it; if your firm pursues too many niches at once, it reverts back to really just being an undifferentiated generalist advisory firm again.

Losing A Fortune Often Comes Down To One Thing: Family (Scott James, New York Times) - At its height in the 1980s, the Stroh family (founders of Stroh Beer/Brewing Company) was worth $9 billion, and the family was so affluent that the children had to be taught at age 6 "how not to be kidnapped" for ransom. And now, Stroh heiress Frances Stroh has written a new book, entitled "Beer Money: A Memoir of Privilege and Loss", which details the fall of the family's empire. And what's notable about the Stroh story is that while many billionaires fall from grace after committing crimes – e.g., Ponzi schemer Bernie Madoff, or former WorldCom CEO Bernie Ebbers – in the case of the Stroh family, it was "simply" the result of a breakdown in family dynamics and family succession. Notably, Stroh beer had already survived several generational transitions – the company started in Detroit in 1850, and by the 1980s it was on its third generation of management and was America's third-largest beer company. But the fourth generation of family managers decided to expand further through expensive acquisitions and going national (buying Schlitz, Schaefer, and Old Milwaukee brands, amongst others), and then was too saddled with debt to make the transition to light beers, and piled on further losses from other ventures (including biotech and Detroit real estate). In the meantime, a cumulative four generations of heirs meant an ever-growing number of family members depending on the annual dividends of the family fortune to maintain their own lifestyles... and as the company profits dried up, ongoing family distributions delved into principal, until eventually, the family fortune collapsed. Ultimately, much of the company's demise seems to be attributed to the fact that in a family business, there's always the risk that the next generation of family leaders will not be sufficiently qualified, competent, or visionary, which appears to be the case here, although notably, Frances Stroh herself has become a successful businesswoman, yet as a female she wasn't put in a position to become a future leader in the male-dominated Stroh family succession plan in the first place.

How We're Getting It All Wrong On Check-Cashing Services (Alex Morrell, Business Insider) - The prevailing wisdom amongst bankers and policymakers is that "alternative financial services" like check cashers and payday lenders are taking advantage of (or being downright predatory towards) the "unbanked" masses, preying on their failure to use traditional banking solutions. To study the issue, University of Pennsylvania professor Lisa Servon went and actually worked as a teller for four months in a check-cashing store, in order to determine if the problem really was that people were making poor financial decisions, or if other issues were at play. The conclusion of her research, published in a recent book "The Unbanking of America: How The New Middle Class Survives", found that in reality the situation is not only more nuanced, but in many situations the check-cashing industry is actually meeting consumer needs more effectively than traditional banks, when it comes to transparency, service, and even cost. For instance, check cashing services might assess $1.50 to pay a bill or $0.89 to buy a money order... but most banks actually charge $5 to $10 for a money order; and while a check-cashing service might charge 1.95% of the face value of the check to cash it immediately, for a small business owner who just received a $5,000 check for a new contract, waiting a few days for it to clear with a traditional bank could mean losing the opportunity or being unable to pay workers, which makes the nearly-$100 check-cashing fee good business. Similarly, many consumers who use check-cashing services value the sheer transparency of those check-cashing fees, which are far more appealing than the dense terms-and-conditions of bank accounts, and their infamous surprise/hidden fees. And ironically, as banks have shifted away from tellers to an increasing volume of ATM and digital solutions, many check-cashing businesses are actually competing in part on the direct consumer-teller relationship that forms, as regular customers visit tellers on a regular basis, and value the service they perceive, especially as banks have shifted towards higher-net-worth clientele. The bottom line – people who use the check-cashing industry may be far more rational than most experts realize.

Financial Success In A Nutshell: Core Tenets Of The Money Boss Philosophy (J.D. Roth, Money Boss) - J.D. Roth founded Get Rich Slowly, one of the first blogs on personal finance, and as the platform grew and evolved, he developed a kind of "financial philosophy" with a series of simple rules and guidelines. The tenets evolved over time, and in this article, Roth provides his latest/current list, which includes: the road to wealth is paved with goals (as without financial goals, you have no direction, and it's easy to spend money on things you'll later regret); small amounts matter (particularly as they're captured in everyday habits); large amounts matter more (as while it's good to clip coupons, it's far more important to save on the big stuff like buying a car or a house); you are 100% responsible for your income (so if you don't like what the market is paying for your knowledge and skills, and the quality and quantity of your work, then upgrade them!); action is the cornerstone of success (as it's always easy to put things off, but then you'll never reach your goals); there's no single "right" way to achieve financial success (because our goals and personalities vary, so we each need to find the tools and techniques that are effective for our own situations); smart money management is more about mindset than math; and you can have anything you want, but you can't have everything you want. (Michael's Note: Years ago, I saw a similar list, which led me to begin creating my own core tenets of "What I Believe" about being successful as a financial advisor business owner, and would encourage you to consider setting forth the "philosophy" for your own financial planning advice as well!)

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

In the meantime, if you're interested in more news and information regarding advisor technology, I'd highly recommend checking out Bill Winterberg's "FPPad" blog on technology for advisors as well.