Executive Summary
Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the news that the Small Business Administration has released data on all Paycheck Protection Program (PPP) loans above $150,000, which includes more than 1,000 independent advisory firms and related industry service providers, raising the question of whether advisory firms are being hypocritical advising clients on their finances while needing to rely upon PPP for their own, or simply humanizing the reality that particularly mid-sized scaling advisory firms are still businesses with staff and overhead that face economic business cycles that can include layoffs in difficult times (which PPP loans were specifically intended to prevent).
Also in the news this week are requests from advocacy groups to the Department of Labor to extend its rather-narrow 30-day Public Comment period regarding the potential for ERISA fiduciaries to begin to receive commissions and other revenue-sharing agreements, and a Model Rule proposal from NASAA for more consistent requirements of state-registered investment advisers on their policies and procedures for everything from their code of ethics and proxy voting to handling material nonpublic information and business continuity and succession.
From there, we have a number of additional industry research studies out lately, including Cerulli research that finds the overwhelming majority of the mass affluent still rely on human advisors (and not robo-advisors) and that most clients are still very satisfied with their advisors (so satisfied, in fact, that it may soon become increasingly difficult to find new clients who aren't already attached to another advisor!), a J.D. Power study that finds the majority of advisors at broker-dealers aren't satisfied with their platform's technology tools (despite 92% acknowledging that technology is crucial to their choice of platform), and a LIMRA study finding that almost 3/4ths of advisory firms have shifted their marketing focus to expand relationships with existing clients as prospecting has become more difficult in the world of pandemic social distancing.
We also have a few marketing-related articles this week, including a look at the kinds of online/digital marketing strategies advisors are testing in the face of the pandemic, guidance on how to create an effective sales process that can be tracked and improved over time, and the core outcomes to focus on whenever conducting a client meeting (hint: the #1 key simply boils down to answering the client question: am I going to be OK?).
We wrap up with three interesting articles, all around the theme of managing ongoing stress: the first examines the concept of "goal diversification" as a way for us to break a cycle of stress and burnout by finding new ways to have some 'small wins' that give us more positive feelings of progress; the second is a powerful reminder that in the age of the 'always connected, always be productive' mindset, sometimes it's incredibly powerful and rejuvenating to make a proactive decision to be deliberately unproductive for a little while; and the last explores recent research findings that the greatest adverse effects of stress actually derive from our mindset about stress, that the more harmful we believe stress will be the more harmful it turns out to be, and that by Acknowledging and Owning the stress, we can try to Use it, changing our mindset about stress that takes us down a (literally) healthier path.
Enjoy the 'light' reading!
SBA Data Release Reveals 1,000+ Advisory Firms Got PPP Loans (Ryan Neal, Jessica Mathews, and Andrew Welsch, Financial Planning) - When the Paycheck Protection Program was first announced in late March as a part of the CARES Act, many businesses were desperate to obtain additional dollars to avoid laying off staff in the face of the pandemic's economic shutdown... which, as it turns out, included a number of financial advisory firms that at the time were also facing a 20%+ decline in revenue from the market's March tumble (and the potential that it could go lower still) and accordingly took out PPP loans of their own. In fact, this week the Small Business Administration released data on all the businesses that received PPP loans of $150,000 or more... and revealed that more than 1,400 advisory firms were included on the list (and notably, the list only includes firms that received at least $150,000 in PPP dollars, which means the total number of advisory firms that participated in PPP may be much larger given the high number of solo and 'small' firms with 2-5 employees whose PPP loans may simply not have reached the threshold). The fact that advisory firms themselves are in the "wealth management" business has led to broad-based criticism that such firms either should not have been eligible or should have otherwise been able to manage their finances and margins enough to withstand a market decline. Especially in the case of 'larger' billion-dollar RIAs given the magnitude of the market rebound since the PPP program was launched, which means in practice many firms that were concerned about their AUM decline in early April when the program launched may no longer feel as exposed (which has, in fact, led to some visible advisory firms declaring they will repay their PPP loan rather than request forgiveness). Yet at the same time, Investment News practice management benchmarking research reveals that it's actually the 'larger' advisory firms (e.g., $500M to $1B of AUM) that often struggle the most to maintain healthy margins to withstand market downturns, with the top 25% of firms running profit margins near 40% but the other 75% with margins averaging just 12%, and thus might have still remained in business but would have been most likely to need to lay off at least some employees in the face of a market, economic, and thus revenue decline (which is exactly what PPP was designed to protect against). Though for better or for worse, the fact that the SEC has generally required most RIAs at least to disclose their PPP loans means prospective and current clients will be able to know whether their firm received the dollars or not; ultimately, consumers will vote with their feet about whether they deem their advisory firms accepting PPP dollars as a negative sign or an inappropriate use of government dollars, or simply makes them more relatable as real-world business owners facing the same real-world challenges their clients do?
Department Of Labor Urged To Extend Comment Period For Fiduciary Proposal (Mark Schoeff Jr., Investment News) - Last week, the Department of Labor released its newly proposed regulations to update ERISA advice standards (after the prior DoL fiduciary rule was vacated in 2018), reversing the tighter fiduciary approach of the previously proposed (as well as the already-existing) rules and instead expanding the ability of ERISA fiduciaries to receive commissions, 12b-1 trails, and other types of revenue-sharing, as long as the recommendation is otherwise in the client's best interests, in coordination with the SEC's similar non-fiduciary Regulation Best Interest rule. As is standard for regulatory rule-making, the Department of Labor's proposal was accompanied by a public comment period, but fiduciary advocates are claiming that the DoL's 30-day time window for public comments is unduly short for substantive analysis and feedback on the rule, and especially because a fast turnaround on the rule will make it impossible to provide constructive feedback that includes an evaluation of how the Regulation Best Interest rules that similarly require a Best Interest standard for recommendations but also allow commissions are actually playing out. However, industry commentators suggest that the DoL isn't likely to extend the comment deadline, as it views the current proposal as not breaking "new ground" but simply continuing a DoL fiduciary update process that has already been underway for the better part of a decade now. Either way, though, the DoL will still be required to evaluate public comments it receives, and respond as appropriate before submitting a final rule... especially with the potential that a change in administration after the November elections could derail a not-yet-finalized new rule.
State Regulators Propose Model Rule For State-Based RIAs' Written Policies And Procedures (Mark Schoeff Jr., Investment News) - This week, the North American Securities Administrators Association (NASAA) proposed a new Model Rule regarding written policies and procedures that would be required for (state-registered) investment advisory firms in the future. The new rule would specifically require that advisory firms formally appoint a Chief Compliance Officer, enact written policies and procedures covering compliance, supervision (including reviewing holdings and transaction reports), proxy voting, ethics, material nonpublic information, and business continuity and succession, tailored as appropriate for the (often solo advisor) scope of the advisory firm itself. Notably, NASAA has already put forth rules in the past in areas ranging from cybersecurity to business continuity and succession, and much of the proposed changes are more of a consolidation of various existing rules than a major introduction of new requirements (though the uniform adoption of a Model Rule may expand compliance obligations for advisors in at least some states). Ultimately, the Model Rule will remain open for public comment until August 1st, at which point NASAA will evaluate feedback, potentially promulgate a final Model Rule, and then send it to the states for them to individually approve (which, notably, means in practice the rule may not take effect for one or several years, depending on each individual state and its willingness to adopt the Model Rule into law).
Research Finds Majority Of Mass Affluent Still Rely On Human Advice (Erick Bergquist, Wealth Management) - According to the latest research study from Cerulli Associates, the rise of "digital advice" technology tools continued to be a complement to, but not a replacement for, human financial advisors going forward. In fact, over 3/4ths of investors surveyed would still recommend their advisor to someone else and that they are worth every penny, while a mere 1% claimed they were unhappy with their advisor relationship... suggesting that not only is the human advisor relationship secure, it may be so secure that advisors will increasingly struggle to grow as more and more clients become attached to an advisor that so few ever have any reason to leave or switch away from. The key appears to be the nature of a human advisor's personalized attention, with investors citing the "trustworthiness, honesty, and dependability" of their advisor (19%), the "overall relationship" (16%), and the advisor's knowledge and quality of advice (13%) as key drivers. In fact, 38% of investors indicated they anticipated a need for more personalized advice in the future, and that in the case of retirees, in particular, retirement planning advice continues to be a primary value proposition from financial advisors.
Advisor Tech Tools At Broker-Dealers Falling Flat Amongst Advisors (Nicole Casperson, Investment News) - The latest J.D. Power ratings on Financial Advisor Satisfaction with their broker-dealers are out, but the data show that despite a significant strategic reallocation of resources away from recruiting initiatives and towards their own technology platforms to improve the productivity of existing advisors, just 48% of advisors say the core technology their firm provides is "very valuable"... despite 92% stating that they rely heavily on that technology from their broker-dealer platform. In addition, just 21% of advisors stated that their tech platform is "completely integrated" with key features like data syncing and workflows, and only 9% of advisors are using "artificial intelligence" tools (though notably, advisor satisfaction with their technology is higher when such tools are in use to support them). In turn, the dissatisfaction is leading to a reported 19% of wirehouse advisors, and 10% of independent advisors, who intend to leave their firms within the next 2 years, as technology becomes a major driver of what platforms advisors choose to affiliate with in the first place.
Social Distancing Really Is Impairing Advisors' Growth Prospects (Michael Fischer, ThinkAdvisor) - A recent LIMRA survey finds that in the era of pandemic shutdowns and social distancing, financial advisor marketing and prospecting has been impaired. The research indicates that nearly 2/3rds of advisors are now working from home, and while many had implemented new technology tools and/or received training on how to adapt, 78% of advisors have said they're focusing more on growing with existing clients than prospecting to new ones (and 24% are now trying to grow exclusively with their existing clients), as the pandemic curtailed the ability to find and develop relationships with new prospects. Still, though, 80% of advisors expressed optimism about their ability to maintain their businesses and serve clients, 70% reported increased communication with clients as the pandemic took effect, and the primary investment-related conversations with clients, not surprisingly, revolve around market volatility (74%) and low-interest rates (45%).
10 Proven Ideas For Marketing In The Age Of Social Distancing (Maribeth Kuzmeski, Red Zone Marketing) - In the face of the coronavirus pandemic shutting down most 'traditional' advisor marketing channels and strategies, firms have been forced to adapt to new approaches. Kuzmeski's research into the advisor marketplace finds a number of new strategies have taken hold, including: adding a virtual entertainment/introduction event (e.g., virtual wine tastings, virtual bingo, and even virtual traveling around the world, as a way to both connect with clients and invite them to [virtually] invite a friend, too); offering virtual educational webinars or seminars (which may not convert quite as well as in-person seminars but are also less expensive to produce and deliver, especially with the help of providers like Leading Response and White Glove); connecting with new prospects via the LinkedIn Sales Navigator (a paid tool within LinkedIn that will help build targeted connections, do follow-up, deliver content, and schedule qualified prospect calls... with third-party providers like Social Advisors helping to support if you don't want to take the time to do it yourself); reinvesting time and effort into refining your own value proposition to differentiate, and/or updating the advisor's own website and adding a new call-to-action to convert more prospects; refining or creating a new referral strategy (and/or reading up on referral experts like Bill Cates of Radical Relevance); updating the advisor's bio to better share their own personal story to make a connection; or simply reaching out and reminding clients of the work you're doing on their behalf, and any new policies you're implementing to protect them in the current environment (from investment strategies, to simply what your face-to-face meeting and mask policy will be in your office to protect clients' personal health!).
A Five-Step Sales Process That Drives Results (Shauna Mace, Advisor Perspectives) - While most financial advisors have (or quickly gain) experience in prospecting and other marketing strategies, many don't have a formal and consistent sales process they execute once they have a prospect to nurture them to actually become a client. Yet arguably, there's little reason to market and create awareness and engagement with prospects until the firm has formalized a repeatable sales process to convert those marketing efforts into business (and even in the case of firms that rely on referrals, there's still a need for some sales process to reinforce your credibility and value to persuade them to actually move forward and work with you over doing nothing at all!). At its core, Mace suggests that a proper advisor sales process should have four stages: 1) to Qualify prospects (i.e., determine whether they are financially qualified to do business with you, have a need/problem you can solve, and that you want to work with them); 2) the Research stage (where the prospect has met with you and acknowledged they need help and are now in the stage of deciding whether to proceed); 3) the Implement stage where they have verbally agreed to move forward but haven't legally formalized it by signing; and 4) Closed, Won, or Lost to signify when they either officially become signed clients or alternatively have completed the sales process but decided not to work with you (but either way are no longer in the sales pipeline). The significance of the Qualify/Research/Implement/Closed, Won, or Lost stages of Sales is that the business can then track how many prospects are in each stage, identify relevant metrics to track through each stage (e.g., when they were last contacted, how long they've been in that stage, the percentage that moves on to the next stage, etc.), and identify steps in the process that could be refined and improved.
Are Your Clients Talking About How Great You Are, And How To Make It Happen (Brett Davidson, FP Advance) - One of the most time-consuming aspects of serving existing clients are maintaining ongoing client review meetings... yet as Davidson notes, ongoing review meetings can also be the biggest driver of client satisfaction, and refining the process can both enhance the perceived value from clients, and ultimately how often they refer the advisor. However, one recent study on client review meetings found that the average client rated the importance of the meeting at an 11 out of 10 (yes, that important!), but their actual client review meeting at only a 3 out of 10. Why the low score? In a word: investments, and specifically, that advisors were talking too much about portfolios in the client review meeting, and not enough about anything and everything else that might be of meaningful importance to them. Davidson suggests that in the end, the client review exists to serve two (and only two) functions: 1) to show the client that everything is going to be alright (and if for some reason it's not, what exactly to do about it), which is the most important; and 2) to politely remind the client what you've done for them lately (i.e., don't wait until times are tough to let clients know what you do for them!). Of course, how we show value in the client review meeting will still vary; in some cases, it's possible to show a hard-dollar win (e.g., my fees are $YY and your tax savings from our strategies this year already saved you more than that!), while in others it's more about the intangible value of advice and the peace of mind it brings (which is harder to measure quantitatively, though, in the end, it is the biggest driver). Still, though, the key point remains the same: to have better client review meetings, focus on showing clients how everything is going to be alright (and/or what to do if it's not)... and politely remind them what you've done for them lately!
How I Broke The Cycle Of Stress With Goal Diversification (Ashten Duncan, Scientific American) - Research has shown that a moderate level of stress can actually be good for us, heightening our sense and focus that can improve memory formation and learning and enhance well-being. However, at some point the stress becomes too much, and moves from 'advantageous' stress to 'toxic' stress... and the balance between the two is often a fine line that's hard to detect until it's too late. Which is problematic, because once hitting the crossover point, the stress can deteriorate our productivity, making us feel worse about our results, which stresses us further and deteriorates the results further, in a downward cycle we commonly known as "burnout" that, in turn, can lead to maladaptive strategies that (ineffectively) try to handle the ongoing stress. The problem is especially acute in areas like medicine, as health services providers are on the front lines of fighting the pandemic, and over-stressed medical workers are more likely to make mistakes that unwittingly harm patients (arguably with a strong parallel to advisors facing burnout who may, in turn, give poor advice to clients). So how can we break the stress cycle? Duncan suggests that the key is to "diversify" into other non-work-related goals, whether self-reflection activities to mindfulness meditation or other 'hope-building' exercises. More generally, it appears that almost any substantive change to the daily pace in the midst of a potential burnout environment, that gives us some new 'small wins' that reinforce our hope and positive outcomes, can help break the cycle and turn it in a more positive direction. Which means, if you're struggling with the cycle of stress, the question becomes: is there something else you can try to achieve, even if it's simply a small win, that gets you back into a more positive upward spiral of success again?
Let Yourself Be Unproductive, At Least For A Little While (Peter Bregman, Harvard Business Review) - The coronavirus pandemic has been a time of grieving and loss for many... from the death of a loved one to the loss of a job or career, to at the least the loss of our normal pre-pandemic 'routine' that seems but a distant memory now. For many, the instinctive response in some times is to "stay busy", finding other activities to focus on to keep moving forward. Yet Bregman notes that in the end, sometimes it's important to be deliberately unproductive in times of stress, instead giving our body and mind time to process a world in upheaval, and decide whether or how it should change us more substantively. In other words, it's only by taking some time that we can figure out whether there may be a new and different path ahead, whether it's taking a walk for a while or deliberately driving the long way home, when you exercise not to listen to music or a podcast and just letting your mind wander, or even taking a break from friends and family if that's the time and space you need. Because it's only by relaxing the demand on your time, thinking, and relationships, that you can reduce the load on your mind and leave space for new feelings and ideas to come forward.
In Stressful Times, Make Stress Work For You (Kari Leibowitz and Alia Crum, The New York Times) - Managing the pandemic shutdown has been stressful for most, from job layoffs to at least job uncertainty, health fears for ourselves and our families, and the challenges of working from home (especially when also caring for children schooling remotely or not at all). Yet the irony is that stress itself is harmful to the body, and can compromise our immune systems, making us even more susceptible to the disease already wreaking havoc. However, recent research suggests that in the end, it may not be stress itself that adversely impacts us, but our mindset about the stress that matters most. In fact, one large study of 30,000 Americans found that those with the highest levels of stress were 43% more likely to die but only if they also believed that the stress was bad for their health, while those who didn't view it as harmful were actually the least likely to die. Which means if we can change our mindset around stress, we may literally be able to reduce its adverse effects (even if we can't eliminate the source of stress itself). In turn, Leibowitz and Crum have developed an open access toolkit for resetting our mindsets around stress, built around 3 core steps: 1) Acknowledge your stress (as once we become conscious of the stress, it moves the activity from our emotional amygdala to our logical prefrontal cortex where we can better evaluate the source of stress and then come up with a strategy to deal with it); 2) Own your stress, recognizing that we only stress about things we care about, which allows us to refocus the negative stress into a positive focus on what's important to us; and 3) then Use the stress by taking the energy it creates and trying to focus it towards what we can control and acting accordingly (e.g., less focus on scary news headlines and more focus on what we're doing to improve our own situation as best we can in the midst of it all).
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, and Craig Iskowitz's "Wealth Management Today" blog as well.
