Weekend Reading For Financial Planners (June 24-25)

Is The SEC Engaging In Regulatory Overkill?

(Tracey Longo | Financial Advisor)

The SEC has been busy during the tenure of Chair Gary Gensler, having proposed 26 new rules between January and August of 2022, more than double the number in 2021 and more than were rolled out in each of the 5 prior full years. And while some of the rules don’t have any pertinence to financial advisors (e.g., regarding the regulation of crypto as securities, SPACs, etc.), many that have been floated during the past couple of years have in fact focused on the growing RIA industry, including a proposed 'outsourcing rule' that would establish formalized due diligence and monitoring obligations for investment advisers who hire third parties to perform certain functions, as well as proposed amendments to the SEC's Custody Rule that 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. Many of these specific proposals have been met with pushback from advisors and investment industry groups, which have raised concerns about the burden they would create for advisory firms.

Taking a broader view toward the SEC’s proposals (and the processes used to craft them), the Investment Adviser Association (IAA) this week sent a letter asking the SEC to consider how these rules, when considered together, would impact investment advisers. Such an evaluation would include "a more expansive, accurate, and quantifiable assessment of the cumulative costs, burdens, and economic effects" that the proposals would have on advisers, their clients, and other market participants. The IAA also asked the SEC to directly address how the proposals would affect smaller advisers (which might have fewer staffing and other resources available to implement the proposed changes), and to consider and address potential alternatives for these firms. Further, the IAA asked the SEC to seek public feedback on a "comprehensive implementation timeline for tiered and staggered compliance requirements and dates" for the proposals (so that advisers would not have to implement several new regulations, if adopted, at once).

In sum, the IAA (among other industry groups) is calling for the SEC to not only slow down the pace of new regulation – RIAs only have so much staff capacity and bandwidth to implement new compliance processes and procedures each year! – but also consider their proposed rules more holistically (rather than in isolation from one another) not only to better understand the costs these regulations would have on investment advisers… but also to implement them in a way that eases the burden on firms tasked with actually implementing them! Because otherwise, there’s a risk that the SEC’s efforts to better protect consumers will create such a regulatory burden – and so increase the cost of doing business – that RIAs are compelled to raise their fees to compensate, which in the end just reduces consumer access to advice in the first place!

Twitter For Advisors Struggles To Match Engagement Found On Other Social Networks

(Ryan Neal | InvestmentNews)

When using social media for marketing purposes, financial advisors have many choices, from the platform(s) to use to the type of content (e.g., text, images, or video) to post. And so, to help inform advisors’ social media use, digital marketing firm Hearsay Systems recently conducted a study analyzing 16.3 million published posts from more than 100 global financial services firms to determine the social media sites and type of content that generated the most user engagement.

The study found that overall engagement for financial services firms increased by 23% across social media networks since the start of the pandemic. For wealth management firms specifically, LinkedIn and Facebook were the most used social channels, with posts on LinkedIn generating a slightly higher engagement rate compared to Facebook. Further, the level of engagement financial services firms saw on these two platforms (as well as on Instagram) far outpaced that received for posts on Twitter (perhaps because of the ability to post longer-form content more easily?). In addition, the report found that the amount of original material surged by 55% and generated nearly 8X the average engagement, suggesting that firms and advisors are being rewarded for offering their unique insights rather than reposting content from others.

Altogether, the report suggests that for financial advisors, LinkedIn and Facebook reign supreme when it comes to engagement, and that advisors are being rewarded for posting original content. Though, notably, advisors do not necessarily have to generate new content for each social media platform (or for posting their own websites) and can instead take advantage of repurposing their original content to boost engagement across multiple platforms!

Why The Dream Of An RIA IPO Is Dead (For Now)

(Ian Wenik | Citywire RIA)

Many privately held companies work toward achieving an ‘exit’ that enables their owners to cash out at least some of their ownership stake. For RIAs, common ways for owners to ‘exit’ include internal successions (where next generation employees might buy out the previous owner[s]) and acquisitions by other RIAs. And in recent years, an influx of interest in RIAs from private equity firms has added an additional source of liquidity for RIA owners. And while owners private companies can also ‘exit’ by taking their company public through an Initial Public Offering (IPO), this approach has been less common for RIAs in recent years.

One reason for the lack of RIA IPOs (and the tepid performance of several RIAs that have successfully gone public) is because investors have a difficult time differentiating between asset management firms (which are viewed as experiencing heavy fee pressure from passive investment management alternatives) and wealth management firms (which have ‘stickier’ inflows thanks to ongoing fee revenue), according to Peter Nesvold, a partner at RIA investment Bank Republic Capital Group. Relatedly, RIAs have been able to receive higher valuations when selling stakes to private equity firms than they have in public markets. For instance, while RIA Cerity Partners was valued at 20X earnings when Genstar Capital took a controlling stake in 2022, publicly traded Focus Financial only saw a multiple of roughly 13.2X earnings in its recent take-private deal (it’s also worth noting that because many RIAs are relatively small, only the largest are likely candidates for an IPO in the first place).

Ultimately, the key point is that broader (unfavorable) trends in the IPO market as well as industry-specific factors appear to be contributing to the lack of successful RIA IPOs. However, given continued interest from private equity firms and a robust M&A pipeline in recent years (though there is debate about whether these will slow in a higher interest rate environment), RIA owners looking for an ‘exit’ appear to have other options available when it comes to selling (part of) their firms!

You Want Certainty. I'm Sorry, You Can't Have It. So How Should You Make Financial Decisions?

(Meg Bartelt | Flow Financial Planning)

As much as one might try, it is impossible to remove all the uncertainty from life. Some uncertainty is related to the challenge of knowing whether you will continue to hold the same preferences in the future as you do today (e.g., preferences for where to live or where to work). Other uncertainties are external (i.e., out of your control), from the interest rate environment to whether your company will still be in business 5 years from now. And so, instead of pursuing certainty, Bartelt suggests instead managing risks and building resilience to be prepared for whatever comes your way.

While the world of finance is uncertain and always changing (from the performance of the stock market, which affects portfolio returns, to interest rates, which influence the cost of buying a home), you can take steps to manage financial risk. For instance, building a robust cash cushion can help you make it through a job layoff or other event that causes you to lose income. In addition, ensuring you have appropriate insurance policies and coverage can help manage against a range of risks (e.g., disability, or medical bills). Further, you can manage legal risks by having legal documents drafted before a major financial transaction that involves another person (e.g., buying a house or getting married) as well as by obtaining professionally prepared estate documents.

Another way to manage uncertainty is to build personal resilience for whatever comes your way. For instance, nurturing relationships with friends and family members can ensure that you have a large network to lean on if something does go wrong. Also, eating well and exercising can help build physical resilience. And when it comes to a career, finding a mentor, sharpening your skills, and building a professional network can help you bounce back when times get tough.

In the end, while life is inherently uncertain, that doesn’t mean you have to throw up your hands and leave your fortune to fate. And while financial advisors cannot provide clients with certainty about their financial future, advisors can play an important role in helping their clients manage their financial risks and encouraging them to build personal resilience!

Advisors Help Clients Navigate The Crisis Du Jour

(Morgan Ranstrom | The Value Of Advice)

Financial media outlets offer viewers and readers a constant barrage of headlines, many of them of the 'scary' variety. Whether it is concerns about interest rates, international events, or sky-high valuations of certain stocks, there is seemingly always something to worry about. And because many clients are exposed to this flow of headlines that suggest a crisis is imminent, they might worry that their portfolio could be susceptible to a negative shock in the near future.

Ranstrom suggests, though, that this phenomenon, dubbed the "crisis du jour", presents an opportunity for advisors to add value for their clients by helping them keep their eyes on their long-term financial plan and why their portfolio is positioned in a way to meet their goals, rather than being calibrated to the latest short-term headlines. For instance, while 2023 has seen a variety of potential crises, from the debt ceiling debate to predictions of an impending recession, the large-cap S&P 500 index has gained more than 10% over the course of the year. And even if the stock market were to dip, Ranstrom highlights how the long-term returns from ‘riskier’ stocks outpace those of lower returning, 'safer' assets despite the various 'crises' (both actual and predicted) that have arisen through the years.

Ultimately, the key point is that advisors can plan an important role in helping clients put 'scary' headlines into perspective, whether it is by helping them explore why they are feeling nervous or emphasizing the financial plan they have created together and how it was built with the potential for market declines in mind!

The Key To Making Good Financial Decisions: Connecting With Your 'Future Self'

(Tim Maurer | Forbes)

Many people maintain a ‘to-do’ list of tasks they want to accomplish, financial or otherwise, to benefit their future selves. Whether it is to start eating healthier or to update their estate documents, it is common to find these items still sitting on the list many months later. The key question, then, is how to increase the chances that one will step up and knock out these to-dos.

Taking inspiration from UCLA professor Hal Hershfield’s book Your Future Self: How To Make Tomorrow Better Today, Maurer suggests that one of the best ways to drive action is to have a better connection to one’s ‘future self’. Because individuals often see their future self as a ‘different’ person, it can be tempting to prioritize today’s preferences over taking actions that will benefit them in the future (e.g., buying a new car today instead of saving money in a retirement account). Fortunately, financial advisors are well-positioned not only to help their clients better imagine their future selves, but also to help them implement the habits that can help them live their best life today and into the future. For instance, advisors can hold clients accountable for completing key future-oriented action items (e.g., drafting estate documents), as well as by automating certain tasks (e.g., retirement plan contributions) to reduce the friction for the client in completing them. At the same time, advisors can also help clients from thinking too much about their future selves, for example by giving them 'permission' to spend on themselves today by calculating sustainable portfolio withdrawals in retirement.

In the end, financial decisions are often a tradeoff between meeting one’s wants and needs today and ensuring that one’s ‘future self’ will be in a good position as well. And so, financial advisors can add value to their clients not only by helping them keep this balance in mind, but also in helping them follow through with the actions that will increase the chances that their current and future selves will be able to live their best lives!

How To Get Employees To Lead Themselves

(Penny Phillips | Wealth Management)

For financial advisory firm owners with one or more employees, managing not only the employees’ workload and responsibilities, but also their broader performance and development, can take up a significant amount of time. And while some managers might jump head-first into this task, sacrificing time for other responsibilities (e.g., business development) to micromanage their employees, others might take a more hands-off approach, which can create more time but perhaps leave the employees feeling aimless or disengaged. However, advisors do not need to choose between these two extremes; rather, they can simultaneously save themselves time while empowering their employees by co-creating expectations, letting the employees take the lead in professional development meetings, and by serving as a coach to help employees succeed based on their individual talents.

First, by ensuring new hires are clear about the expectations for their position as well as how success will be defined (and by allowing them to share feedback about how they feel about their new role), firm owners can provide new employees with a roadmap that will not only be easier for the employee to follow, but also to help them figure out whether they are meeting or exceeding expectations. For instance, the firm owner could explain the metrics they will be using to track whether the new hire is succeeding in their objectives (e.g., whether they are responding to client inquiries within 24 hours).

Next, while professional development review meetings can be challenging for managers (particularly if they feel like they have to drive the agenda and content of the meeting), these meetings are also opportunities to empower employees to lead themselves. For instance, rather than the manager starting the meeting by presenting the employee with feedback, they could set the expectation that it is up to the employee to come to the meeting with an update on how they feel like they are performing in the role and what they want to achieve personally and professionally in the short and long term. This can then serve as a jumping-off point for the advisor to provide their feedback and to work out any potential problems together.

Finally, firm owners can empower employees by serving as a coach, not to force the owner's way of doing things on the employee, but rather to help the employee succeed in a way that leverages their strengths. For instance, when dealing with a business challenge, firm owners can use open-ended questions (e.g., questions starting with "what" or "how") to give the employee a chance to figure out the problem themselves (e.g., "What resources do you have at your disposal to solve this"). In addition, tailoring communication to the team member’s preferences and approaching these conversations without assumptions can create an atmosphere more conducive to the employee coming up with a workable solution on their own rather than being defensive or relying on the owner’s judgment.

Ultimately, the key point is that while having employees naturally creates management responsibilities for firm owners, these duties do not need to be all-encompassing. Rather, by setting expectations and taking steps to encourage team members to lead themselves, firm owners can both empower their employees and reduce the amount of time and mental bandwidth they devote to managing them!

Making Meetings And Offsites Meaningful

(Beverly Flaxington | Advisor Perspectives)

It can often be beneficial for companies (financial advisory firms or otherwise) or teams to take a step back from their day-to-day workflow and meet to discuss big-picture items (e.g., goals for the next year). And whether it is a half-day meeting or a multi-day offsite retreat, using certain best practices for the preparation and execution can help ensure that it is useful for both the company and its employees.

First, teams can consider creating a process and ‘rules’ for the meeting or offsite, which can help keep discussions on the topic at hand and provide an organized way for participants to share their ideas (groups can also consider bringing in a professional facilitator to help guide the conversation). Relatedly, in addition to full-group sessions, organizers can also consider holding breakout conversations (e.g., in pairs or small groups) to help spur conversation (as some participants might feel more comfortable raising their thoughts in a small group, or with peers, rather than with the whole team or firm). And beyond the discussion itself, inserting regular breaks into the meeting or retreat can not only help employees relax, but also can provide time for participants to process what they have heard and generate new ideas for the following sessions. Finally, it is not only important to be clear not only about what success will look like for the engagement (e.g., deliverables), but also to decide how the team will ensure there is follow-through on what was discussed.

In sum, proper preparation is key to ensuring that a company meeting or offsite is successful. By creating a structure for the event, ensuring all voices have an opportunity to be heard, and setting expectations for deliverables, a firm can increase the likelihood that its next event will not only be productive, but also meaningful as well!

Hiring Superstars Is Different

(Ben Casnocha)

When companies want to make a hire, they often feel that they are in the driver's seat, assuming that candidates (who might be unhappy in their current job or might have been laid off recently) will line up to apply for the position. But sometimes, a company might identify a ‘superstar’ talent that might be happy in their current position and therefore will need to be convinced to move to the new gig.

In these circumstances, Casnocha suggests that companies play a 'long game'. While a normal hiring process might take a month or two, the pursuit of a 'superstar' could play out over the course of many months, or even years, as the head of the interested company sells the target on the opportunity. Notably, this courtship period is not just about convincing the superstar about the potential benefits of changing jobs, but also gives the hiring company a chance to informally vet the target to ensure they will be a good cultural fit (and that the company’s time and monetary investment in making the hire will be worth it). Further, this vetting period can be used to get buy-in from stakeholders, including other equity partners in the firm, so that when the superstar is ready to join, the hiring company can present their formal offer quickly and confidently.

In the financial planning world, reeling in an advisor 'superstar' often reflects this extended process, as the advisor might be happy with their current situation and could be reluctant to deal with the potential hassles that can go along with changing firms (e.g., working through any client non-solicit agreement). Which means that firms can consider ways to not only identify several potential ‘superstars’ (e.g., through regular networking at financial advisor conferences) but also in ensuring the firm offers the culture, compensation, and perks that can convince them to make the switch!

What If The Most Powerful Way To Live Longer Is Just Exercise?

(Alex Janin | The Wall Street Journal)

When it comes to being healthy and/or extending one's lifespan, there is no shortage of 'expert' advice or recommended products to purchase. But while research into an optimal diet and the value of supplements is often conflicting, the value of exercise for health has significantly more consistent scientific backing.

For instance, exercise has been shown to both protect against age-related diseases and help people be more active in their later years. One study that analyzed data on more than 650,000 adults for about 10 years found that those who got about half of the government’s recommended physical activity (about 75 minutes of moderate-intensity exercise) added an average of 1.8 years to their lives compared to those who were inactive. Further, those who exercised for roughly 5 to 8 hours per week added an average of 4.2 years to their lifespans. Individuals can also consider the type of exercise they are doing as well; while one study found significant benefits from a wide range of activities, doing a mix of endurance and strength training can be particularly helpful as individuals get older and muscle mass and basal metabolic rate (i.e., the number of calories the body naturally burns at rest) start to decline.

Ultimately, the key point is that it might not take a complicated regimen of cold plunges, supplements, and specific dietary habits to increase one’s lifespan. Rather, a moderate, but regular, exercise routine could be the key to living a healthier life, both now and into the future!

You Only Have 15 Minutes To Work Out. What Should You Do?

(Brett & Kate McKay | The Art Of Manliness)

While it might be easy to understand the importance of exercising, actually getting a workout in can be more of a challenge. Whether it is a late night in the office or family obligations, many things can come up that interrupt the time allotted for exercise. But given research finding that some exercise is better than nothing (with just a few minutes of vigorous activity a day reducing cancer mortality risk by 40% and cardiovascular mortality risk by almost 50%), adapting a workout for the (limited) amount of time available can provide significant health benefits.

One option is to focus on workout density, doing as much work as possible in the available time. For instance, if you were planning to do 4 exercises for 3 sets each, you could instead consider doing one set of "AMRAPs" (As Many Reps As Possible) for each exercise. Another option is to do a "superset", or performing two different exercises one right after the other. This works best when combining exercises that work different muscle groups (e.g., bicep curls and tricep dips) to prevent overexertion, or even combining “compound” exercises that work more than one muscle group (e.g., combining squats with shoulder presses). Further, certain workouts are tailored for shorter periods; for instance, High-Intensity Interval Training (HIIT) workouts alternate very intense bursts of exercise with periods of rest, and, given the intensity, can only be done for a relatively short period of time before exhaustion sets in. And if you’re really strapped for time (or do not have equipment available), a short bodyweight workout or a simple walk can be good for both physical and mental health.

In sum, you do not necessarily need a lot of time to get a good workout in. So whether you are on the road or balancing responsibilities at home, finding a way to squeeze in a short period of exercise can help you maintain your fitness regimen and promote overall wellbeing!

The Importance Of Investing In Our Health

(Michael Finke | Advisor Perspectives)

When financial advisors and their clients hear the word 'investments', they might think about financial assets that can help them grow their wealth. But these are not the only investments that are important in a client’s life. For instance, while proper financial investments can increase the chances that a client will have sufficient resources to live off in their later years, investments in their health can increase the chances that they will actually be able to enjoy their retirement (or even make it to retirement age in the first place!).

Citing the book Outlive by Peter Attia, Finke argues that health should be viewed as an investment that increases one’s ability to get the most out of life in old age. This not only refers to one’s lifespan (i.e., how many years they are expected to live), but also their “healthspan” (i.e., how long an individual can maintain unimpaired physical capabilities). For instance, an individual could live until age 90, but might not have a very enjoyable retirement if they are unable to engage in their favorite activities in their later years because of illness or physical limitations.

Attia identifies regular exercise as one of the linchpins to extending both one’s lifespan and their healthspan. For example, because the body’s ability to process oxygen falls by about 10% every decade, cardiovascular exercise is important to help maintain (or even increase) these levels so that an individual can do similar activities in retirement as they did during middle age. Further, because an average 80-year-old will have 40% less lean muscle mass than they did early in life, investing in regular strength training can help reduce this muscle loss (allowing for more physical activities and helping to prevent falls in old age).

Ultimately, the key point is that while investing in exercise and other parts of a healthy lifestyle (e.g., building solid relationships and eating habits) cannot guarantee a longer lifespan or healthspan (just as a particular asset allocation cannot guarantee certain returns), they can increase the chances that an individual will not just live longer, but also have a more fulfilling retirement!

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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.