Weekend Reading For Financial Planners (March 30-31)

Americans Increasingly Prioritizing Work-Life Balance Over Higher Salaries, Survey Suggests

(Steve Randall | InvestmentNews)

Workers often see their salary increase over the course of their career, whether because they gain skills and experience to make them more proficient in their current position or as they take on roles of increasing value to their employer. At the same time, higher-paying positions can sometimes come with negative implications for work-life balance, whether because the positions are more stressful (e.g., if a position requires managing others in addition to their previous responsibilities) or because they require the individual to work more hours during the week. Which can leave workers with a choice: whether to take a higher paying, but more stressful, position, or be in a position that offers less pay but a better work-life balance.

According to a survey by KeyBank, Americans are increasingly leaning toward the latter option, with 63% of respondents reporting that they would prefer work-life balance over a high-paying salary, up from 57% in KeyBank’s 2022 survey (though while the survey measures respondents’ expressed preferences, it is possible their actual decision making could tell a different story?). And when it comes to the actual work they do, 66% of respondents said they would rather make less money working at a job they loved than more money at a job they hated (although respondents under age 35 were more evenly split on this question than other groups, perhaps reflecting that they are earlier in the wealth building lifecycle).

Interestingly, Kitces Research on Advisor Wellbeing has found that the tradeoff between work-life balance and income might not be so direct for financial advisors, particularly those with more experience. For instance, the research study found that “Thriving” advisors (i.e., those who rated their current life quality as a 9 or a 10 on a 0–10 scale) tended to have both higher incomes and fewer hours worked per week than those who were “Struggling” (i.e., those who rated their current life quality as a 5 or less on a 0–10 scale). Notably, these “Thriving” advisors tended to have more client-facing experience and worked at more mature firms than their “Struggling” counterparts, suggesting that rather than a constantly upward-sloping relationship between income and work-life balance for advisors, after a challenging period earlier in one’s career (or soon after starting a firm), advisors can potentially reap the benefits of both greater income (as they tend to generate greater revenue per client) and overall wellbeing (with fewer hours worked and more time spent working directly on the duties they enjoy the most [often client-facing work])!

SEC Risk Alert Warns Of T+1 Transition

(Melanie Waddell | ThinkAdvisor)

Before the widespread adoption of electronic trading, investors often received paper stock certificates or bonds. Which meant that trades involved the physical exchange of these documents; for example, an investor selling a position would have to deliver the paper stock certificates to their broker in order to settle their side of the trade. Because of this, investors (and their brokers) were given several days between agreeing to a trade and settling it (whether by delivering the shares in the case of a sale, or cash if a security was being purchased).

However, the prevalence of electronic trading (where no physical shares are being exchanged) and electronic bank transfers in the modern era means that less time is typically needed to settle trades. Which led the SEC in 2017 to shorten the settlement cycle from 3 days after the trade was made (“T+3”) to 2 days after the trade (“T+2”). In practical terms, this meant that investors engaging in a sale had one fewer day to either deliver the shares (though typically their custodian would already have possession of them) or, when making a purchase, to deliver sufficient cash to the custodian to settle the trade. Doing so also reduces the counterparty risk for brokerage and clearing firms that trades would not settle (e.g., if the buyer is not able to come up with sufficient cash for the purchase or doesn’t actually have the stock shares to sell).

Last year, to further streamline trading and reduce settlement risk (particularly in the wake of the “meme stock” craze of 2021, where market volatility led to certain trades not settling properly), the SEC finalized a rule to shorten the standard settlement cycle for securities transactions (specifically, for equities and ETFs, corporate and municipal bonds, and UITs, REITs, and MLPs) further to 1 business day after the trade (“T+1”), a change that will go into effect on May 28, and align securities settlements with the long-standing T+1 settlement time for mutual funds.

Given that the new rule will impact both broker-dealers and RIAs, the SEC this week released a risk alert outlining the requirements for these market participants and explaining how the regulator will review compliance during upcoming examinations. For broker-dealers, the new rules mean, among other things, that they will need to ensure contracts for the purchase or a sale of a security (other than exempted securities) provide for payment of funds and delivery of securities no later than the first business day after the date of the transaction. Further, the rules require RIAs to maintain records of T+1 trade confirmations related to relevant transactions under the new rules.

In the end, most advisors and their clients are unlikely to experience major practical changes as a result of the change from T+2 to T+1 settlement, particularly if client assets are held at a custodian (and are therefore available to settle trades without the need for the delivery of paper stock certificates or cash to settle the trade), though the rule could reduce the number of trades that go unsettled. It also means cash is available more quickly if clients actually need to spend it (e.g., selling stocks to raise cash they need to close on a house in a few days), and advisors will no longer need to worry about aligning the timing of a T+2 stock or ETF sale to fund the purchase of a T+1 mutual fund. At the same time, advisors will want to be aware of the trade confirmation recordkeeping requirements under the rule (though most receive such notifications from their custodial platforms already), and will need to be particularly mindful if engaging trades on behalf of clients who actually still hold paper stock certificates!

Many Millennial Millionaires Looking To Switch Advisors, J.D. Power Says

(Jacqueline Sergeant | Financial Advisor)

Financial advisors tend to enjoy high client retention levels (an average of 97% of their clients on a year-to-year basis, per the latest InvestmentNews Advisor Benchmarking Study), often thanks to the high level of client service provided (though perhaps client inertia can play a role as well). Nevertheless, given the potential loss of revenue that can come when a client departs, taking a step back to consider whether they are providing the types of services and communication methods their clients seek can help advisors keep their retention rates as high as possible.

According to a recent survey of nearly 10,000 financial advisory clients by J.D. Power, client satisfaction with their advisors increased by 8 points to 735 (on a 1,000-point scale), though the firm noted that this gain could have been influenced by the strong stock market returns experienced in 2023. While the firm found that intended attrition rates among respondents as a whole was low, 36% of Millennial clients with more than $1 million in investible assets indicated they are likely to change firms in the next year (with one potential reason being that Millennials were more likely than other generations to have a secondary investment firm, indicating a willingness to shift money across multiple advisors).

The study found that one way for advisors to remain competitive (particularly in a world where they are competing with digital advice offerings that can be less expensive for clients) is to deliver personalized advice based on an understanding of clients’ unique needs (reflecting a previous study by Vanguard that found that clients have a strong preference for these qualitative tasks to be performed by human advisors). Relatedly, the study also found that it is not necessarily sufficient for advisors to provide clients with electronic account access and other digital tools, as it found that advisors who take the time to help clients understand and engage with the digital tools offered had higher client satisfaction scores, while those who did not were perceived more negatively.

Ultimately, the key point is that while financial advisory client retention levels remain high, advisors who are able to enable clients to take advantage of available technology solutions (that can increase their engagement with the planning process) while providing comprehensive planning services (that are challenging for a digital tool to mimic) could potentially boost their client satisfaction levels further and better attract new clients!

How To Adapt To Different Styles Of Prospects

(Michelle Donovan | Advisor Perspectives)

Financial advicers tend to spend a significant amount of time getting to know their clients, whether in understanding their financial goals, their risk tolerance, or other aspects of their lives, to create an implement a financial plan that meets their needs. In addition to these unique differences, clients also come to the table with different personality types, from those who are looking to have a long conversation about the plan to those who just want to hear the advisor’s recommendation and give their approval. Notably, though, being able to recognize clients’ communication preferences and adapting meeting discussions accordingly can also be valuable during the prospecting process.

One framework for assessing prospects’ (or clients’) personality type is the “DISC Profile”. Each of the letters in the letters in DISC represent a different personality “profile”. Those with Dominance (“D”) personalities tend to prefer efficiency and would rather discuss bottom-line results rather than engage in small talk. Advisors meeting with prospects with the D style will be most effective if they are confident, well-prepared, and can be forward-leaning when it comes to asking the prospect whether they’re ready to work with the firm. On the other hand, those with the Influence (“I”) personality type are energetic, optimistic, and talkative. To effectively work with these prospects, advisors will be friendly, positive, and be willing to engage in an extended conversation about their service offering. Prospects with the Steadiness (“S”) personality type will be looking to build a relationship with their advisor, likely seeking signs of sincerity and dependability during discovery meetings. Advisors who show genuine interest in “S” types and their needs will have more success converting them to clients, though these prospsects might need additional time to make a decision. Finally, those with the Conscientiousness (“C”) personality type tend to be serious and will likely prioritize competency and professionalism, perhaps coming to a meeting with a list of questions to evaluate the advisors. Those advisors who can answer these prospects’ questions comprehensively and competently will tend to have more success.

In sum, prospective clients are likely to come to the table with certain preferences for how the advisor sells themselves and the services they offer. Which suggests that while an advisor might have a standard ‘pitch’ for prospects, adjusting the presentation based on the prospect’s personality (at least based on what the advisor can glean from initial interactions, if not a formal assessment like DISC) could make it significantly more effective, whether by digging into the details of the planning process for “S” types or by getting right to the point for those with the “D” type!

Doctors Don't Do Discovery Meetings

(Ari Galper | Advisor Perspectives)

Financial advisors often build close, personal relationships with their clients as they help them achieve their financial goals, often over the course of many years. With this in mind, it would seem logical to get the relationship-building process rolling during the prospecting process, taking time to get to know the prospects personally, as they would if they were developing a friendship.

However, Galper suggests that this approach, where the advisor and the prospect are acting as ‘equals’ is inefficient, as the prospect is ultimately coming to the advisor (an expert) to help them solve the financial ‘problems’ they face (e.g., can they afford to retire immediately). Instead, he recommends that advisors (after receiving the prospect’s financial data) engage in a deep-dive diagnostic meeting, where the advisor defines the scope and parameters of the ‘problem(s)’ the prospect is facing (highlighting to them the importance of actually solving it). By providing this clarity, the advisor can show the prospect that they understand the prospect’s issues (and can help them solve them if they work together). Galper notes that this approach is similar to that of doctors, who typically do not first hold relationship-building appointments before holding an additional meeting to providing a diagnosis of the patient’s issues.

Altogether, Galper argues that one key to converting a prospect into a client is to ensure the prospect views the advisor as a trusted authority. Which means that rather than sell the advisor’s personality or general value proposition, prospects might be more receptive to an approach that demonstrates the advisor’s unique expertise and ability to diagnose (and solve!) the prospect’s unique financial problems (though, like doctors, a certain level of empathy and ‘bedside manner’ on the part of the advisor can help build the prospect’s trust as well!).

What To Do When Prospects Think You Will Sell Them

(Maribeth Kuzmeski | Advisor Perspectives)

Engaging a financial advisor can be a difficult proposition for a prospect, whether because of the challenge of opening up about their full financial lives (warts and all) to a stranger, or because of an expectation that they will encounter heavy-handed sales tactics (which is why many individuals who could benefit from a financial advice relationship don’t reach out in the first place). Given these hurdles, one way for advisors to humanize themselves (and potentially encourage visitors to their website to take the step of setting up an introductory meeting) by including a thoughtful biography on their website.

An effective biography typically shows the advisor’s authentic self and demonstrate who the advisor is as a person. For instance, an advisor who loves dogs might include details about their pet, while an advisor who loves to travel might discuss about their favorite destination (and if the advisor serves a particular affinity niche, this could be a way to show target prospects that the advisor is similar to them!). Including pictures in the biography (e.g., of the advisor and their family, or perhaps doing their favorite activity discussed in the biography) can further humanize the advisor. Another way for an advisor to demonstrate their human side is to include a short video alongside their written bio; this video could discuss why they enjoy working as a financial advisor or provide more details about themselves and their personality. In addition, a biography can offer ways for visitors who want to dig deeper and learn more about the advisor to do so, whether by linking to the advisor’s LinkedIn profile or the firm’s blog.

Ultimately, the key point is that because approaching a human advisor to explore a potential advice relationship can be nerve-wracking for a prospective client, finding ways to demonstrate that the advisor is both friendly and trustworthy can go a long way to ease this tension. And so, whether it is by creating an engaging website biography, leveraging their LinkedIn profile, and/or sharing authentic expertise online, advisors can help lower the mental hurdles for prospects to reach out and get on the path of becoming a client!

How To Handle A Sudden Financial Windfall

(Beth DeCarbo | The Wall Street Journal)

An individual can receive a sudden financial windfall for many reasons; some are positive (e.g., the proceeds from the sale of a business) while others are linked to more negative events (e.g., a legal settlement from an injury or an inheritance from a beloved family member who died). Either way, receiving a windfall typically represents a major change in an individual’s life, though it by no means guarantees that they will be happier in the long run.

According to Susan Bradley, founder of the Sudden Money Institute, one way to make the most out of a financial windfall is to build a team of advisors that can help the recipient navigate decisions that need to be made and the potential challenges they will face. For instance, a financial advisor can support the individual in exploring their goals for the money and creating an appropriate financial plan (perhaps working in tandem with tax and legal advisors as well). In addition, windfall recipients might also seek out mental health professionals not only to help them navigate what having this money means for their lifestyle (i.e., perhaps going from having modest retirement savings to more than enough money to support themselves for the rest of their lives), but also to navigate potential bumps along the road (e.g., ‘friends’ and relatives who come to the individual asking for money or animosity from relatives who did not receive a part of the inheritance). And beyond these formal advisors, windfall recipients might identify an individual who they knew before receiving the money (e.g., a close friend) to serve as a confidant when discussing matters related to their newfound wealth.

In sum, while financial advisors have an important role to play in supporting recipients of financial windfalls (and this group could be an effective client niche for an advisor interested in these issues?), these individuals can benefit from a team approach that allows them to use their wealth to meet their (perhaps newly developed) personal goals while trying to minimize the mental strain (and potential to be the victim of fraud) that can come with such a major lifestyle change!

How I Handled An Unexpected Inheritance

(Madeline Hume | Morningstar)

The receipt of an inheritance often comes a surprise, whether because the death that led to it was unexpected or because the recipient had no idea that they would be included in the decedent’s estate plan. Which means that inheritors might not be prepared for how to handle the sudden cash infusion (whether a small or large amount of money).

However, Hume notes that before getting into financial decision making with regard to the inheritance, it can be beneficial to address emotional needs first (particularly if the recipient was close to the decedent). Next, the heir can review the terms of the bequest; for example, the decedent might have spelled out what they wanted the recipient to do with the money (the recipient can also consider the types of assets received; for instance, they might handle cash differently than they would an inherited IRA, given the tax consequences of withdrawing funds from the latter). If the inheritance came without direction, the recipient can then consider different possibilities for using the money; some might choose to pay down debt while others might use it as a down payment for a home. In Hume’s case, she and her husband decided to invest an inheritance they received and allocate it towards long-term goals, honoring the legacy of the decedent, who spent their retirement doing things they loved and taking care of important people to them, by setting themselves up to do the same.

Ultimately, the key point is that while receiving an inheritance is often seen as a positive financial development for the recipient, it can come with ‘strings’ attached, whether formal (if the decedent directed how it should be used) or emotional (as the recipient might permanently associate the funds with the decedent). Which suggests that while advisors might be tempted to first discuss how to spend or save the inheritance, a more effective approach might be to allow the client to first open up about the decedent (particularly if they were close) and what the money ‘means’ to them (which could be very different than their earned income and other savings!) before allocating it within their financial plan!

Avoidable Mistakes For The Suddenly Wealthy

(Jacqueline Sergeant | Financial Advisor)

While some individuals who receive financial windfalls might already be used to handling wealth (e.g., a high-income professional who inherits money from a parent or grandparent), others might not be used to having significant wealth (e.g., lottery winners, young entrepreneurs, or new professional athletes). Which can lead this latter group to fall into traps that could threaten their newfound wealth. And while some of these are common (e.g., buying too many luxury goods or making poor business investments), others are not as obvious.

According to Joe Farren, the president of Aquilance, a financial administration company providing financial management services for wealthy clients, heavy social media use can prove to be a threat to newly wealthy individuals (e.g., by posting pictures of themselves while on vacation, they might open themselves up to a kidnapping attempt, or a home robbery). In addition, newly wealthy individuals often need guidance when it comes to insurance, not only for protecting new purchases (e.g., a house), but also to cover their potential liability exposures. Another common pitfall is hiring home staff (e.g., nannies, housecleaners, or landscapers) and paying them ‘under the table’ (i.e., not through a formal employee or contractor agreement), which can result in legal liability (as the wealthy individual is unlikely to have a worker’s compensation policy that covers them) and potential tax issues (e.g., for improper tax withholdings for domestic employees).

Given these potential threats to an individual’s newfound wealth, these individuals could benefit from having a group of trusted professionals (e.g., a financial advisor, lawyer, and accountant) to look out for their potential exposures. Which suggests that if a financial advisor has a client in this position, they could add significant value not only by working with them to develop a sustainable financial plan, but also by referring them to vetted legal and tax advisors to fill out their ‘team’ with trusted advisors who can help ensure their wealth will last for the long run!

The Inside Story Of How 8 Google Employees Invented Modern AI

(Steven Levy | Wired)

One of the major innovations over the past few years has been the introduction of large language models like ChatGPT, which can provide human-like responses to user inquiries, or prompts. But Artificial Intelligence (AI) itself has a long history, much of it confined to academic research. However, this field took a massive leap forward in 2017 with the publishing of the groundbreaking paper “Attention Is All You Need”, which inspired many of the AI innovations to follow, including ChatGPT.

Notably, this paper was not the result of a single engineer’s genius; rather, it was the culmination of the work of 8 computer scientists, all of whom worked at Google. While the company had become the dominant player in search engines, it wanted to be on the lookout for potential threats. For example, while Google’s search engine could provide a user with a list of websites in response to a query, a tool like Apple’s Siri could provide an actual answer to (typically relatively simple) questions. This led computer scientists at Google to explore ways to provide actual answers to user queries, with AI being a promising tool to do so. However, the dominant paradigm at the time, recurrent neural networks, appeared to reach a plateau, necessitating more creative solutions.

A Google computer scientist, Jakob Uszkoreit, started developing a different approach, which he called “self-attention”, which would potentially help an AI model better understand longer chunks of text (a requirement to answer longer, more complicated inquiries from users). While he was able to make significant progress on his own, it was only after he linked up with other Google employees (and an undergraduate intern) to help him develop the model that they were really able to move the ball forward. Notably, the other team members typically did not join the project based on a formal job posting, but rather heard about it during casual conversations in the Google offices. Working together (further demonstrating their relative lack of ego, the authors took equal credit for the ultimate paper), the team developed the concept of “transformers”, which became the driver behind ChatGPT and other now-famous AI products.

Ultimately, the key point is that innovations often occur when a group of individuals bring their unique talents and insights together to take on a common problem. And by fostering a collaborative environment where chance hallway encounters and cutting-edge research were encouraged, Google has been able to develop this kind of collaboration, perhaps providing a model for other companies (even those in other industries) to follow!

How The Interstate Highway System Changed American Industry

(Lawrence Hamtil | Fortune Financial)

Today, most Americans likely take the interstate highway system for granted. Allowing cars and trucks to travel at relatively high speeds (at least when there’s no traffic) and uninterrupted by traffic lights, interstates have eased both the ability to travel for consumers and have expanded distribution networks for businesses.

While it is an established part of America’s transportation system today, the interstate system was a massive undertaking when it was first introduced in 1956. In that year, the Federal Highway Act created the interstate system, which would measure almost 48,000 miles in total distance at a cost (in today’s dollars) of more than $500 billion. At the time, President Dwight Eisenhower saw the interstate system (inspired by the German Autobahn) as having many purposes, from speeding travel for citizens and providing logistical flexibility for businesses (as the nation’s railroad networks had become stretched during the two World Wars) to enabling military resupply or evacuations in times of crisis. While bold at the time, the investment has paid off, with researchers at the University of California, San Diego estimating that the highway system returned $1.80 in greater economic activity for every $1 invested. Notably, many businesses that are household names today were boosted by the highway system, including Wal-Mart (whose trucks could now travel to small-town stores much more quickly) to Holiday Inn (which provided roadside accommodations for travelers taking advantage of the interstates to visit different parts of the country).

Altogether, the history of the interstate highway system shows how a single innovation can have widespread and long-lasting impacts on the economy. So the next time you’re cruising down the highway, take a moment to thank the innovators (and construction workers!) who made it possible!

A $400 Million Bet Says This Is The Mall Of The Future

(Kate King | The Wall Street Journal)

The indoor shopping mall has been a staple of American life for decades, serving as a place to meet up with friends, take a walk (particularly in the cold winter), and, of course, shop. However, many shopping malls have struggled in recent years, with large discount retailers (e.g., Target) and the ubiquity of online shopping taking away some of their allure.

Nonetheless, many mall owners (often commercial Real Estate Investment Trusts [REITs]) are revitalizing aging shopping centers to become more attractive to consumers, even if they look different than the malls of previous years. For instance, Southdale Center, located in the Minneapolis suburbs, was the first indoor shopping mall in the country when it opened in 1956 and became extremely popular. Its fortunes in recent years have shifted, though, as online shopping increased and the significantly larger Mall of America moved in nearby, leading many of its tenants (particularly struggling traditional department stores that ‘anchored’ the mall) to depart. The mall is now undergoing a revitalization, emphasizing higher-end store brands (as while consumers might be willing to buy lower-cost products online, they are more likely to want to see higher-end goods in person) and making the center a hub of activities that are hard to replicate online (e.g., the mall now includes a gym, movie theater, and high-tech miniature golf course, as well as a coworking space and hotel).

In sum, at a time when the gap between thriving and struggling shopping malls is wide (with the top 25% of U.S. properties having sales of $750 to $1,200 per square foot, compared to an average of $150–$475 per square foot at poor-performing malls), innovation in how a mall is designed and filled could mean the difference between creating a thriving center of community activity and a run-down eyesore (though we can still maintain nostalgia for the shopping mall of years past!).

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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.