Weekend Reading For Financial Planners (January 4–5)

Client Acquisition Tops List Of Advisor Concerns: Cerulli

(Jennifer Lea Reed | Financial Advisor)

New client growth is the lifeblood of financial advisory firms, whether they are in a rapid growth phase or are looking to maintain a fairly steady client base (given that at least some client attrition is inevitable). Nevertheless, doing so can sometimes be challenging for advisors, potentially because they are having a hard time differentiating themselves in an increasingly competitive environment for financial advice.

According to survey data from research firm Cerulli Associates, 56% of financial advisors view new client acquisition as their greatest challenge. When able to choose more than one option, other challenges cited by respondents included compliance and regulatory responsibilities (40%), technology management (31%), building multigenerational client relationships (29%), and optimizing client portfolio construction (25%). In terms of their most effective marketing strategies, respondents highlighted building alliances with others in the industry (with 73% indicating doing so was "very effective"), social events for top clients and prospects (73%), and referrals (67%), with online videos and thought leadership digital content following behind.

Looking specifically at new client acquisitions, Cerulli analysts suggested one reason for this challenge might be that some advisors are offering financial planning services that aren't as comprehensive as they assume. For example, while an increasing number of firms offer retirement and insurance planning, more 'advanced' services that could better serve as differentiators include in-depth tax and estate planning. At the same time, advisory firms might find a middle ground (given that offering too comprehensive services can potentially cut into their bottom lines) of offering the 'advanced' services that are most relevant to their ideal target client.

Ultimately, the key point is that while new client acquisition is a perennial challenge for many advisory firms, this survey suggests it is particularly acute for some advisors at the moment. And while many firms have 'tried and true' marketing strategies that they use to attract new clients, those looking to boost the number of quality prospect leads they receive might look to augment them with additional tactics in the new year (or perhaps review and refine their service offering and marketing messages to better attract prospects that match their ideal client persona?).

401(k) Investors With Advisors Contribute More, Feel More Confident: Pontera

(Financial Advisor)

While many financial advisors work with individuals nearing and in retirement (perhaps rolling their workplace retirement accounts into IRAs in the process), for prospects and clients who are still in the workforce, their workplace accounts often represent a significant portion of their assets. While managing these 'held away' assets can be trickier for an advisor compared to IRAs and taxable brokerage accounts, a recent survey suggests that advisors can still provide significant value to clients with workplace retirement plans.

According to a survey of workplace retirement plan participants by Pontera (a data aggregation tool that enables advisors to more efficiently and securely manage their clients' 401(k) plan accounts), investors with an advisor contributed 15% of their income to their 401(k), compared with 10% among self-directed participants. Further, 66% of those with an advisor contributed the maximum to their workplace accounts, compared to 40% of those without an advisor (though this could be due in part to the advised population of the survey being more likely to have income in excess of $100,000 and therefore be able to fit additional contributions within their budget). Notably, respondents are hungry for financial advice, with 74% indicating that they would like professional help with their account and, among this group, 77% reporting that they would be willing to pay for an advisor's expertise. In addition, those who do work with an advisor appear to benefit from this engagement at a more qualitative level, with 84% feeling highly confident about their financial future.

Altogether, this survey suggests that despite the logistical challenges of serving this group, workplace retirement plan participants could be a fruitful source of new clients for advisors as part of a comprehensive planning offering (for individuals with sufficient assets and/or income to pay the advisor's fee) or perhaps a financial wellness program that offers lighter-touch service to more individuals while leaving the door open for them to become comprehensive planning clients down the line as their assets grow (in no small part to their work with the advisor!).

SEC Rule Predictions: What's In, What's Out In 2025

(Melanie Waddell | ThinkAdvisor)

Financial advisors and other investment industry participants waited eagerly throughout 2024 for the results of the presidential election to have a better idea of what the regulatory environment might look like in the coming years. With the election now decided (along with the nomination of former Securities and Exchange Commission [SEC] Commissioner Paul Atkins to lead the regulator), industry observers are now considering what changes might be in store for 2025.

One area of focus in the new administration could surround the SEC's Custody Rule, with amendments proposed under current SEC Chair Gary Gensler (which would, among other measures, extend custody obligations beyond securities and funds subject to the current rule to encompass all assets in a client's portfolio for advisors who manage on a discretionary basis) seemingly unlikely to see the light of day in the new administration. In addition, given Atkins' previous support for crypto assets, the SEC could look to lighten requirements surrounding advisers' management of them (potentially making it easier for interested investment advisors to purchase them on behalf of clients). Other regulatory areas that could see changes in 2025 include enforcement of Regulation Best Interest (Reg BI) (possibly by focusing on its conflicts of interest and disclosure requirements rather than its care obligation), more specific guidance regarding the SEC's marketing rule (which could make advisors more inclined to use client testimonials and other marketing tactics permitted under the rule), and a potentially different approach towards regulating firms' use of off-channel communications (perhaps, given Atkins' previous comments decrying "regulation by enforcement", taking a lighter touch than the Gensler-led SEC when it comes to fines for certain violations).

In the end, while specific proposals are not yet on the table (and Atkins must first be confirmed by the Senate, though his nomination is seen as relatively uncontroversial), a lighter burden of enforcement on RIAs could be a relief for many firms (especially for smaller RIAs with less capacity to adjust to new and/or expanded rules), though if lighter-touch regulation leads to more abuses that erode consumer trust in the financial advice industry (whether they occur in RIAs or otherwise), fiduciary advisors could have a harder time convincing clients that they truly are acting in their best interests and differentiating from product salespeople who continue to use the "financial advisor" title?

Money Can Buy Retired Clients A Longer Life, To A Point

(Joe Pinsker | The Wall Street Journal)

Having sufficient wealth can unlock many benefits for retired clients, from allowing them to choose where to live and travel to reducing the stress that can come with having limited financial means. In addition to these benefits, research suggests that wealth is associated with a longer lifespan (though after a certain point this boost comes with diminishing returns), which could have implications for the financial planning process as well.

According to a study published last year, the wealthiest 10% of individuals live to a median age of 86 years, approximately 14 years longer than the least wealthy 10%. Nevertheless, the gains to lifespan that come with greater financial resources are easier to obtain at relatively modest income levels. For instance, a separate study found that while someone with a household income of $20,000 (on average) would live about 10 more months than someone making $14,000. At the higher end of the income spectrum, there is a similar 10-month lifespan boost when going from $160,000 to $225,000 in income and between $225,000 and $1.95 million (indicating there are diminishing returns to the next dollar of income, particularly at the highest income levels, which is similar to the relationship between income and happiness). These lifespan boosts are due in part to individuals with greater wealth and/or income being able to afford healthier food, more healthcare, and homes in safer, less-polluted communities, according to one of the first study's co-authors. Though notably, many activities that researchers suggest can boost lifespan (e.g., maintaining an active social network, exploring hobbies, and remaining physically active) don't necessarily cost significant money.

In sum, given that financial advisors tend to work with clients at the higher end of the income/wealth spectrum (though there are also many opportunities to serve clients on a pro bono basis and help them reap the health rewards that can come with a better financial situation!), this research suggests that they not only might project longer-than-average life expectancies for many of these clients when producing financial projections but also can add value by offering ideas to interested clients (retired or otherwise) for how they might spend their money in ways that can improve their health and longevity, from engaging in healthy, enriching social activities (e.g., ballroom dancing classes) to 'buying time' to reduce stress!

Navigating The Decline Of A Client's Mental Capacity

(Sheryl Rowling | Morningstar)

For financial advisors working with older clients, it is nearly inevitable that some of these individuals will experience a certain level of cognitive decline as they age. Which suggests that advisors can add value by working with these clients to come up with a plan for this contingency well before it arises (perhaps when clients are in their 50s or early 60s).

Such an "aging plan" could have four key components: living arrangements (i.e., whether clients might want to receive care at home or in an assisted living facility down the line), financial management (e.g., who might provide support if the client needs assistance managing their finances), health decisions (e.g., establishing strategies for handling medical decisions and designating trusted family members or professionals who can advocate for them), and driving privileges (so that the clients can be involved in the decision rather than feeling disempowered). In addition, given that advisors might only interact with their clients a few times a year, building a trusted network related to the client (e.g., family members as well as fellow professionals such as CPAs or attorneys) can help them better identify signs of cognitive decline in their clients (that might impact their financial decision making). Further, regularly revising the aging plan can ensure that it matches the client's wishes, that the 'right' individuals are still involved (e.g., in case of divorce), and, more broadly, keeps the client engaged in thinking about plans for their future.

Ultimately, the key point is that while cognitive decline can be a challenging circumstance for both a client and their financial advisor, planning for various contingencies and building a trusted network in advance can potentially lead to a more positive resolution for all parties (and perhaps could serve as a reminder for advisory firm owners to ensure they have their own succession and contingency plans in place as well!).

Aging And The Impact Of Cognitive Decline On Investment Decisions

(Larry Swedroe | WealthManagement)

While older individuals can experience severe cognitive decline that might not be difficult to identify, a more modest decline in mental capacity can be harder to detect for loved ones, key partners (e.g., financial advisors), and the individuals themselves. Nonetheless, research suggests that this more subtle loss of mental capacity can impact an individual's ability to handle their personal finances, including investment decisions.

For instance, according to a 2009 study, older investors "are less effective in applying their investment knowledge and exhibit worse investment skill", with the stocks these investors own lagging the market by ever-increasing amounts as they grow older. A subsequent 2011 study found that while financial literacy scores decline by about 1 percentage point each year after age 60, one's confidence in their financial decision-making abilities doesn't decline with age, potentially contributing to poor investment outcomes.

Adding to this research base, a newly revised study looks at the relationship between individuals' (mis)perceptions of their cognitive abilities and their actual investment performance. Using data from the bi-annual Health and Retirement Study, the researchers found that approximately 80% of individuals who experienced severe memory loss between adjacent waves of the survey rated their memory as stable or improved (and while wealthier individuals were relatively less likely to experience severe memory loss, this factor was only weakly associated with the probability of being unaware if they did experience decline). The study found that those who were unaware of their declining memory performance suffered large wealth losses (about 10% on average in the real value of financial wealth) compared to those who were aware of their decline or who did not experience a severe decline.

Altogether, these studies point to the value of financial advisors both in providing investment management (and other) services to older clients who might be experiencing (and unaware of) cognitive decline and in identifying behaviors (e.g., unusual requests related to investment management) that could signal such decline (which could call for bringing trusted contacts of the client into the picture).

Personal Goodwill Is Opening Up M&A Deals Even For Employee Advisors Looking To Sell

(Andrew Foerch | Citywire RIA)

Many Merger and Acquisition (M&A) transactions in the RIA space involve the sale of an entire firm (either as an entity or asset purchase), in which the buyer purchases both the 'hard' assets of the selling firm, as well as the goodwill of the business (e.g., the willingness of clients to keep paying fees to the firm even as its ownership changes hands). However, an advisory firm owner can only sell the firm if they actually own it, which means traditional M&A activity is relegated to the domain of advisors who own their own RIA and actually can sell the business as a whole (thus why more and more brokers at broker-dealers are transitioning to the independent RIA channel). Yet recently, a new type of transaction is emerging, where individual employee advisors (who don't 'own' their client relationships, because the clients are technically signed with the firm) can still sell their 'personal goodwill' (i.e., their reputation, experience, and relationships with clients who will follow them) to a buying firm they will join (often mid-to-large sized RIAs). Which means, in essence, that even employee advisors are beginning to get paid to sell their 'book of business', even when they don't technically own the client agreements or the entity in the first place!

Notably, there have long been arrangements where advisors were recruited from one firm to another, and might be provided a forgivable note as an incentive to make the switch. But this new goodwill-style deal structure offers potential additional benefits for both parties. For the advisor, this transaction not only allows them to monetize the time and effort they have spent building their book of business, but also can provide them with tax-friendly compensation (as the proceeds of a goodwill sale are taxed at favorable long-term capital gains rates rather than as ordinary income, as long as the advisor has been registered with regulators for more than 12 months). For buying firms, the transaction lets them acquire advisor talent (along with potentially a significant portion of their client roster) without also having to buy the other 'hard' assets that come with the purchase of a full firm, and to peel out individual employee advisors from a larger firm with especially strong client relationships.

Nevertheless, these deals are not without risk for both parties as well. To start, selling advisors will need to be aware of any restrictive covenants (e.g., non-compete or non-solicit agreements) they are subject to in their current position (to avoid a potential lawsuit). In addition, given that goodwill sales are a relatively new phenomenon (and come with tax benefits), they could subject the advisor to IRS scrutiny (which they could defend against by having a formal appraisal done to confirm that goodwill provisions will apply, but that may be difficult when such breakaway exits are usually meant to be kept quiet until it's time to make the change). For acquiring firms, a major risk is that clients will not come along with their advisor to their new firm (though deals can be structured so that most, if not all, of the goodwill payments come on the backend, contingent on the revenue that the advisor actually brings over).

Ultimately, the key point is that while 'personal goodwill' transactions have the potential to be win-win situations for both employee advisors and acquiring firms (and a newfound retention threat for existing firms?), a certain degree of care is necessary to unlock full value for both parties (and not run afoul of legal agreements of the IRS!). Which could offer an alternative for advisors who want to monetize their personal goodwill without having to start their own firm, and for firms who want to add advisors (and, potentially, their clients) without the integration challenges (and costs) that come from acquiring an entire firm!

Selling Founders Are Scared Of What Their Clients Will Say

(Emily Blue | WealthManagement)

Selling an advisory firm is a momentous occasion for a founder, serving as the culmination of years building the business and potentially many months readying the firm for a sale, finding a suitable buyer, and concluding negotiations. Nevertheless, selling a firm can cause anxiety as well, particularly when it comes to informing clients (with whom the founder might have a multi-decade relationship) about the pending transition.

Blue suggests that founders in this situation "flip the script" by framing the conversation with clients as a celebration of a major milestone for the firm owner (just as they celebrated many client milestones!) rather than a loss for the client. In fact, many clients might be happy to hear that the founder is being rewarded for the excellent service they have provided over the years. Nonetheless, many clients will still have concerns about the transition, particularly when it comes to potential changes to the level of service they might receive. For founders who will continue to serve their clients within the acquiring firm, this can serve as a positive opportunity as well by explaining how the transition will allow them to spend more time working directly with clients rather than on the administrative responsibilities of running an advisory business.

In sum, while informing clients about the sale of the firm can be a challenging conversation for founders, framing the move in a positive way (both for the client and the founder themselves) can lead to a more enjoyable meeting and, ultimately, increase the likelihood that the client will stay on in the new firm (which could have positive implications for the founder's payout from the deal!).

Six RIA Valuation Drivers In 2025 And Beyond

(Dan Kreuter | ThinkAdvisor)

When valuing an RIA (for a potential sale), traditional metrics include firm revenue and/or profitability (often measured in the form of EBITDA [Earnings Before Interest, Taxes, Depreciation, and Amortization]). Nonetheless, many buyers might want a deeper look under the hood when considering an offer to understand the nature of the selling firm's business at a more granular level.

For instance, on the quantitative side, buyers (particularly those backed by private equity funding, according to Kreuter) might be interested in verified revenue quality (i.e., sustainable revenue streams traceable to custodian reports) rather than relying on the selling firm's reports at face value. Buyers will also be interested in the firm's growth trajectory (often in the form of net new assets independent of market appreciation), with firms seeing healthy growth getting a premium valuation compared to those that are more stagnant. At a more qualitative level, buyers might be interested in the quality of the firm's client relationships (e.g., the firm's service model, client retention rates, and whether clients are loyal to certain advisors rather than the firm itself) and client demographics (e.g., the percentage of clients that are in the accumulation or decumulation stage). In addition, sellers can receive a better valuation by demonstrating operational excellence (e.g., a firm's processes, tech stack, and compliance record) and by showing greater team stability (e.g., by having more next-generation advisors who are many years from retirement).

Ultimately, the key point is that there is no single metric to value an RIA considering a sale. Rather, buyers today appear to be taking a more holistic approach to valuation in order to determine whether the business will continue to deliver value for its clients (and for its new owner) well into the future (suggesting that founders might consider looking beyond revenue or EBITDA as well when it comes to preparing their firm for a sale!).

A Five-Step Recipe To Make New Year's Resolutions That Stick

(Jake Knapp | Medium)

Setting New Year's resolutions is an annual tradition for many individuals looking to make an improvement in their lives in the coming year. However, breaking these resolutions is also unfortunately a common tradition as well. Which suggests that setting more achievable resolutions and/or pursuing them in a more sustainable way could make them more likely to stick.

A first step in setting a successful resolution is to create one that isn't too ambitious. For instance, resolving to read 300 books during the year is a much more difficult challenge than resolving to read at least 10 pages each day. Next, successful resolutions are often very specific. For example, while a resolution to "exercise more" is quite general, resolving to do cardio and strength training two times per week is much easier to track. A third step is to add "for at least ten minutes every day" to the end of the resolution, given that most people can carve out ten minutes each day for work on the resolution and that doing so can keep the new 'habit' going. Also, trying to keep the resolution going for the first month can help build momentum (and might not seem as scary as continuing it throughout the entire year). Finally, it's ok to forgive yourself if you miss a day or two. Because with the "at least ten minutes a day" trick, it will be easier to get back on track!

In sum, the most successful New Year's resolutions are often the ones that can be done consistently, rather than the most ambitious, and could ultimately lead to habits that persist beyond the current year!

25 Fun And Practical Goals To Reach For In 2025

(Malaka Gharib | NPR)

While everyone is familiar with the concept of setting a New Year's resolution, actually coming up with one can be trickier (particularly when trying to be more specific than "eat healthier" or "exercise more"). With this in mind, Gharib offers 25 ideas for resolutions (and links to articles that can help make them happen!).

One broad category of resolutions are those that help you get organized. These could include reducing clutter in your house, preparing meals in advance for the week, or making better to-do lists. Other resolutions involve self-control, such as resisting the urge to spend money when stressed, having healthier sleep habits, or having a better relationship with caffeine. Still other resolutions are challenging to the mind. For instance, you might resolve to be a better communicator with your partner or try to understand the perspectives of those with whom you disagree. And while many resolutions are more serious (e.g., health-related), they can be fun as well. For instance, you might resolve to host more dinner parties with friends, learn new recipes, or perhaps simply add more novelty to everyday life.

Ultimately, the key point is that 2025 could be the year to break away from a 'traditional' New Year's resolution and try something new (which could be a resolution in itself?)!

Resolve To Set Business Goals Differently This Year

(Beverly Flaxington | Advisor Perspectives)

While New Year's resolutions are a common occurrence for individuals, organizations (including financial planning firms) can make them as well, often in the form of annual goals. Just like personal resolutions, choosing realistic, achievable targets is a key part of creating effective company goals. At the same time, firm goals are quite different in that they require the buy-in (and work) of many individuals, as opposed to just those setting them.

Although many annual advisory firm goals are quantitative (e.g., net new clients or a particular client retention rate), linking them to qualitative outcomes (e.g., implementing a new marketing plan or hosting an annual client event) can help get firm-wide buy-in by showing staff what role they can have in achieving the targets. In addition, seeking feedback from the team on potential obstacles to achieving the stated goals can help unearth potential blocking points (and start a conversation on how they might be overcome). Another key part of this process is determining who will be the key stakeholders for achieving the goal (as well as the qualitative outcomes that feed into it) as well as how decisions will be made (i.e., selecting criteria, such as whether the fastest or the least expensive path will be taken). Finally, given that annual goals can seem 'big' when looking at them from a distance, "chunking" the goals into smaller, specific steps (setting a leader, deadline, and budget for it) can help the path to achieving it become more concrete.

In the end, the best goals, whether personal or business, are often those that are highly relevant and can be achieved. Nevertheless, given that success isn't guaranteed (as the graveyard of failed New Year's resolution can attest to), taking a structured approach to setting business targets that brings the entire team into the goal-setting (and achieving) process can increase the chances that they will be reached by the end of the year!

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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.