Weekend Reading For Financial Planners (May 14-15)

Recapping The T3 Tech Conference: Record Attendance And The Rise Of The Platforms

(Timothy Welsh | RIABiz)

While the pandemic brought most in-person conferences to a screeching halt, the development of new and improved advisor technology solutions continued unabated. Yet, given that many firms moved even more functions into the digital environment during the pandemic, having the right tech stack to meet advisor and client needs has become increasingly important. And so, the Technology Tools for Today (T3) Conference returned this year with a bang after a two-year absence, seeing its largest-ever (nearly 1,000 person) attendance, and offering a glimpse into the latest in AdvisorTech developments.

One of the major themes at the conference was how advisors can best manage the large amounts of client data they handle, which is currently splintered across so many different advisor technology tools. With this in mind, CRMs were center stage (with a buzz surrounding the rebranding of Junxure to AdvisorEngine CRM, as well as Orion Advisor Services’ recent acquisition of Redtail). Also on display was the growing presence of ‘all-in-one’ tech platforms that offer advisors a combination of portfolio management, trading, CRM, and even financial planning software capabilities. In fact, more than 20% of advisors now use an all-in-one solution, according to the 2022 T3/Inside Information Survey released during the conference.

There were plenty of other major announcements at the conference as well, including Morningstar buying a $30-million stake in SMArtX (further expanding its custom portfolio and direct indexing capabilities), and Orion announcing its data deal with Amazon Redshift to streamline investment data delivery to advisors. In addition, FMG Suite rebranded itself as FMG, and marketing automation platform Snappy Kraken announced its purchase of Advisor Websites.

Overall, the conference demonstrated an emphasis on “personalization at scale”, as advisors grapple with how to leverage technology solutions to scale the efficiency of their businesses while still providing personalized advice for each client. And given the combinations and integrations among current products, as well as a new crop of startups on the rise, it appears that T3 will continue to be a popular destination for advisors seeking these solutions!

Advisors Want To Stay In Their Client-Segment Lane

(Michael Thrasher | RIAIntel)

The archetypical client for RIAs is often considered to be the ‘affluent’ retiree (or pre-retiree who will retire imminently) with between $1 million and $5 million in investable assets. These clients are attractive because they have sufficient assets to pay AUM-based fees, and are more plentiful than those select few ultra-high-net-worth consumers further up the wealth ladder. At the same time, though, this is creating rising competition for clients, as the growth in RIAs and the broker-dealer shift to fee-based accounts mean more and more advisors are going after the same affluent clientele. Which has led to a growing clamor of industry consultants suggesting that advisory firms should start branching out into working with new and different client segments (e.g., Gen X or Gen Y ‘next generation’ clients).

However, a recent survey shows that most advisory firms are choosing to just stay in their ‘lane’, at least when it comes to client wealth and sources of new clients. According to the survey, by Institutional Investor’s Custom Research Lab and Franklin Templeton Investments, most RIAs (60%) are continuing to focus on the ‘affluent’ category of clients with between $1 million and $5 million in assets, while only 38% and 30% are prioritizing higher net worth ($5M to $10M) or the emerging affluent (<$1M), respectively.

Even more notable, though, was that 78% of advisory firms said their primary focus in the coming years was simply to keep acquiring clients in their current market segment, while only 10% of firms were focusing on retaining the children of current clients, and just 11% of firms were looking to otherwise pursue clients outside of their core focus. Further reflecting this focus, the survey also showed that referrals from current clients remain the top source of new clients for RIAs, with referrals from centers of influence (e.g., lawyers and accountants) coming in a distant second, which again means firms are most likely to expand with their current segment of clients (who tend to refer others who are similar to themselves).

Ultimately, the key point is that notwithstanding industry calls to shift and expand focus – which may be conceptually appealing, but in practice is difficult for advisory firms that are built primarily to serve the core clients they already serve – advisors themselves appear to be content staying in their current client segments and leveraging their current clients for referrals with similar wealth demographics. Of course, that also means there is a growing opportunity for firms that are willing to differentiate themselves and/or take the leap to working with clients outside of their comfort zone, precisely because so many other firms are staying focused on the same core segments, whether that means starting to seek out clients from new referral partners, or those with emergent wealth (whether from those with high incomes but limited assets or those who stand to inherit wealth)!

Recruiting Wars For Women Advisors Intensify

(Miriam Rozen | AdvisorHub)

Recognizing dramatic skews in the gender and racial characteristics between financial advisors and the broader population (e.g., more than 75% of CFP professionals are men and more than 80% are white), many firms have increased their efforts to recruit a more diverse workforce. And given the tight labor market, there appears to be a significant opportunity for current and aspiring advisors in sought-after demographics to negotiate attractive pay packages.

And according to some recruiters for large broker-dealers, the result of these trends is better offers for women seeking positions in the industry. While the policies are not explicit and there are no set compensation formulas, the recruiters report that female candidates are seen as desired candidates and are receiving more aggressive offers.

Of course, hiring women and other candidates that add diversity is only the first step to creating a more representative profession. Another key aspect once these individuals are hired is to create a sense of inclusion, helping individuals feel safe, involved in the group, respected, and valued. And firms have a range of options to do so, from developing mentorship programs for new planners to investing in scholarship programs to help aspiring CFPs meet their education and exam requirements.

So while anecdotes suggest that competition is heating up in the advisory industry for diverse talent, the most successful companies are likely to be those that not only offer the most competitive pay but also develop an inclusive firm culture that helps all employees perform at their best and feel valued.

Now's A Good Time To Focus On Tax-Loss Harvesting. Here are 7 Tips.

(Cheryl Winokur Munk | Barron’s)

With a fairly consistent run of stock market returns between the end of the Great Recession and the pandemic, there were fewer opportunities for clients to take advantage of tax-loss harvesting (the sale of investments that have declined in value below their cost basis to ‘generate’ tax losses that can be used to offset capital gains or a limited amount of ordinary income). But now, the current sharp equity (and bond) market decline potentially presents an opportunity for advisors to generate tax alpha for clients through tax-loss harvesting. That said, there are several potential guidelines and pitfalls to keep in mind.

First, it is important for advisors to recognize the limits to the benefits of tax-loss harvesting. For example, while realized losses can be used to offset any capital gains incurred during the year, an investor can only apply $3,000 of losses against ordinary income each tax year (though remaining losses carry over to following years), which means an investor might not see the benefits of a large tax loss until future years. Also, while harvesting a loss generates current tax savings, it also reduces the cost basis of the investment, triggering a potential gain in the future that may offset most or all of the loss harvesting benefit (or at best, turning it into a tax deferral opportunity, not hard-dollar tax savings)!

In addition, it is important for advisors and their clients to avoid running afoul of the wash-sale rule, which prohibits selling an investment for a loss and purchasing the same or a “substantially identical” investment 30 days before or after the sale (any disallowed losses are added onto the cost basis of the newly purchased shares). Advisors need to take particular care with clients who reinvest dividends (as these ongoing reinvestment purchases could trigger a wash sale and invalidate a tax-loss harvesting transaction), or who have several accounts (as the client could accidentally create a wash sale by selling an investment at a loss in one account and buying a substantially identical investment in another, even if it’s an IRA). Also, it is important to come up with a plan for the 30-day period after selling the original investment, because clients could miss out on potential market gains if the proceeds from the sale are not reinvested (while if they are reinvested, there’s a risk of a short-term gain if the market rallies during the intervening period, which also needs to be planned for).

The key point is that, while now might be a particularly attractive time to engage in tax-loss harvesting, advisors and their clients need to consider a range of factors to maximize the benefits and avoid potential missteps. Because at a time when some clients might be frustrated with the performance of their investment portfolios, successfully executed tax-loss harvesting can be a way for advisors to help reduce their tax bill this year, which at least helps to dent the pain of a market decline with some near-term tax savings!

You Passed Roth IRA Income Limits, Where Should Your Next Dollar Go?

(Sophia Bera | Gen Y Planning)

For those in the accumulation phase of their lives, the number of tax-advantaged savings vehicles can be confusing. Adding complexity, the government imposes income limits for some of these options. But given the significant potential tax advantages (particularly for those whose savings are likely to compound for decades), advisors can add significant value to these clients by crafting an appropriate savings strategy.

The Roth IRA is a popular retirement savings vehicle because while contributions are made on an after-tax basis, they grow on a tax-free basis and qualified withdrawals can be made tax-free. But in addition to annual contribution limits ($6,000 in 2022, plus a $1,000 catch-up contribution for those 50 and older), the IRS also imposes income limits on those who can make Roth IRA contributions (in 2022, contributions can no longer be made once income reaches $214,000 for those filing married filing jointly, or $144,000 for those filing single, head of household, or married filing separately). And for those whose income exceeds the limits, a ‘backdoor’ Roth IRA (where a contribution is first made to a non-deductible IRA and then converted to a Roth) could be a viable option.

In addition, clients with workplace retirement plans could have options to make Roth contributions, no matter their income. Many employers offer a Roth 401(k) option, which allows Roth contributions to be made up to the contribution limit ($20,500 in 2022, plus an additional $6,500 catch-up for those 50 and older). And some employers offer the opportunity for ‘mega back-door’ Roth contributions, where employees can make after-tax contributions to the retirement plan (that can then be converted to a Roth 401(k)) up to the 2022 limit of $61,000 ($67,500 for those 50 and older) for all employee and employer contributions.

The key point is that there are multiple options to make Roth contributions, even if a client has income above the limit for Roth IRAs. At the same time, advisors should also consider whether it might actually be more beneficial for a client to make non-Roth contributions in a given year (e.g., in years when the client has an unusually high income that puts them in a higher tax bracket). In the end, advisors can help clients by both navigating the rules around Roth contributions and by assessing what type of retirement contribution is most appropriate in a given year!

How Advisors Can Use The New “Contingent Deferred” Annuity

(Allison Bell | ThinkAdvisor)

Longevity risk is one of the hot topics on the minds of advisors and clients considering expanding life expectancies. The poor performance of equities and bonds so far in 2022 compounds these concerns given the prospect of sequence of return risk for retirees. And while sources of guaranteed income, such as annuities, might be attractive to many clients, some balk at the loss of optionality that comes from taking funds out of their portfolio and putting them into the annuity.

With this in mind, Aria Retirement Solution’s RetireOne introduced a fee-based Contingent Deferred Annuity (CDA) product (also known as a Stand-Alone Living Benefit or SALB) that allows clients to keep their funds invested in their current investment account (with eligible RIA custodians) while gaining the protection of guaranteed income if their account is depleted. With the CDA, the issuing insurance company guarantees a certain annual income for the purchaser, such as $40,000/year on a $1,000,000 investment account. This income initially comes from portfolio withdrawals from the account itself. If returns are favorable, the distributions simply sustain. However, if market returns are less favorable, and the portfolio is depleted to a specified level, at that point, the insurance company takes over the income payments. In return for this protection, the insurance takes an annual fee from the portfolio (varying from 1.1% to 2.3% per year in the case of the new Aria/Midland product, with fees driven in part by the amount of risk taken in the portfolio). Notably, the total cost of a CDA arrangement will also include the advisor’s own AUM fees for managing the portfolio, and any underlying fund fees.

In a new whitepaper, retirement researcher Michael Finke compares the CDA to sharing a birthday cake at a party. If the slices are made too big (i.e., too much annual income is withdrawn from an investment portfolio), the cake (portfolio) could run out. On the other hand, if the slices are too small, there could be some left over (or in the case of a retiree, they spent less during their lifetimes than what their portfolio would have supported). The CDA ensures that the retiree will be able to have a certain annual income each year without having to make the annual ‘slices’ small enough to make sure the portfolio lasts throughout retirement (because the CDA guarantee backstops the arrangement if the ‘cake’ is running out).

In the end, it is important for advisors to recognize their clients’ retirement income styles and choose a retirement income strategy accordingly. For those with full confidence in long-term market returns, underlying guarantees may not be necessary, and those who don’t want to take any market risk may not want to invest at all. However, for a segment in particular, the CDA structure is aiming to find a balance of serving clients who are willing to stay invested in markets, but are willing to give up some long-term upside (as a result of the annuity costs) in exchange for having some income floor in place in the event of an unfavorable sequence of market returns that is otherwise beyond their control.

How To Use Webinars To Generate Leads For Your Advisory Business In 2022

(Justin Adams | Twenty Over Ten)

In-person seminars have long been a marketing tool for financial advisors. Being able to present in front of a group of potential clients provides an advisor with an opportunity to gather contact information for these individuals, and also to demonstrate the advisor’s expertise and ability to address the attendees’ planning needs. At the same time, in-person seminars can be costly (and were harder to hold during the pandemic), so many advisors have turned to webinars as an alternative way to reach prospects. In addition, webinars can attract more attendees, as they do not have to be located near the webinar location!

Of course, anyone who has attended several webinars knows that not all webinars are created equal in terms of engaging the audience. First, it’s important to recognize that a high-quality advisor-led webinar is not just a sales pitch, but rather is an opportunity to share the advisor’s knowledge and provide value to attendees (with the follow-on benefit of demonstrating the advisor’s expertise to the potential clients), so the advisor will want to pick a webinar topic on which they are knowledgeable and is of interest to their target attendee.

The advisor can then consider some of the practical implications of hosting a webinar. This includes when it is held (best to avoid weekends and holidays), the platform to use (e.g., Zoom or BigMarker), and the technology needed (e.g., a quality camera and microphone). Also important is the marketing strategy, including creating a landing/registration page, email schedule (both leading up to and following the webinar), and social media campaign.

The key point is that running a webinar can be more cost-efficient than a live seminar to generate leads for prospective clients, but it requires planning to attract the targeted attendees and provide a high-quality experience. And with many advisors already using webinars to drive their marketing, it appears that they could supplant in-person events going forward!

10 Advisor Website Must-Haves

(Crystal Butler | Advisor Perspectives)

A lighthouse. A picture of a couple on the brink of retirement. Muted tones. These are some of the things that might come to mind when you think about traditional financial advisor websites. But advisor websites have become more innovative and functional during the past several years, making it more important for advisors to have a website that attracts the right type of prospects and leads them to engage with the firm.

To start, it’s important to make the firm’s contact information easy to find, which not only makes it easier for the consumer to reach out to the firm, but also helps with search engine optimization. This can also include a call to action, such as an automated tool to schedule a meeting with an advisor. Another way to generate engagement is to offer a lead-generating opt-in, such as a white paper, risk questionnaire, or a checklist. Gathering contact information using such an offering can allow the advisor to follow up with a nurture sequence and stay on the consumer’s mind by sending regular newsletters with important updates and regular information.

And while it’s important to make it easy for a consumer to contact the advisor, it is also crucial to provide sufficient information about the advisor on the website to make the visitor want to reach out in the first place. This could include credibility indicators (e.g., credentials and media features) and an ‘About’ page that tells the advisor’s story and who they serve so that prospects know what to expect from the advisor and whether the firm might be a good fit. In addition, posting the firm’s fees and minimums, as well as its privacy policy, on the website can demonstrate transparency to the visitor (and can help filter out individuals who would be unable to pay the firm’s fees!).

In the end, a high-quality advisor website can increase the chances that a consumer will have a positive impression of the firm. And while there is no single ‘best’ way to build an advisor website, there are several key components, from the layout to the types of information included, that make it more likely a consumer will reach out to engage with the advisor and eventually become a client!

Why Advisors Should Never Use The Words "Follow-Up"

(Ari Galper | Advisor Perspectives)

The period after an initial prospect meeting can be a tense time for an advisor. If the prospect did not commit to working with the firm during the meeting, it could be for a variety of reasons, from wanting to sleep on what is a momentous decision to checking out other advisors to deciding not to work with the advisor but not knowing how to turn them down. Whatever the case, the advisor often reaches back out to check in with the prospect and tries to move them toward being a client.

In these calls or emails, it might come naturally to the advisor to use the term ‘follow-up’, as in “I’m following up on our meeting last week…”. But Galper argues that doing so can be counter-productive, as ‘follow-up’ is a stereotypical ‘sales’ phrase and can send the message to the prospect that the advisor cares more about making the sale than solving their problem.

Instead, Galper suggests using the following introduction: “Hi, I’m just giving you a call to see if you have any ‘feedback’ on our initial conversation, as I’d like to hear about what’s still on your mind about your financial concerns and if they are still a priority for you to solve once and for all”. He notes that asking for feedback can be an effective way to elicit the truth of what the client is really thinking about their financial situation and potentially working with the advisor. This provides the advisor with an opportunity to offer the chance for another conversation to address their continued concerns.

The key point is that by demonstrating authenticity and sincerity (rather than an urge to ‘close the deal’), an advisor can create a more positive engagement with a prospect with whom they have recently met. And part of doing so could mean avoiding the phrase ‘follow-up’, which could take some practice for those used to using it!

Boost Your Mental Health By Saying 'No'

(Elizabeth Bernstein | The Wall Street Journal)

Sometimes it can be hard to say ‘no’. Especially coming out of a period when in-person social and professional engagements were limited, it can now be tempting to say ‘yes’ to invitations that you receive. However, there are only so many hours in the day, and filling up your schedule can leave you burned out and less effective in both your work and personal lives. The key, then, is to prioritize what you want to say 'yes' to, and to explore ways to make it easier to say ‘no’.

The first step in deciding whether to accept an invitation is to take a deep breath and consider your schedule. It can be easy to convince yourself that the person inviting you expects an immediate response, but it’s very likely that you have enough time (particularly if the invitation came through email or text!) to consider your other obligations and whether you want to accept the offer.

If you do decide to decline the invitation, it is important to be honest with the sender. Rather than telling a ‘white lie’ to excuse yourself from saying ‘no’, you can be upfront and gracious, whether it is because you reserved that evening for your family or have been too busy at work and need a night off to relax. You can also soften the blow by offering an alternative, whether it is offering to meet on a different night or changing the type of event (e.g., declining a dinner invitation but offering to meet for a 30-minute chat over coffee). And in the case of an advisor who wants to say ‘no’ to a prospect who would be a bad fit, this could mean referring them to another advisor who would be more appropriate for their needs.

Ultimately, the key point is that while saying ‘no’ can be hard to swallow, doing so gracefully can both ensure that you are not overburdening yourself and maintain a good relationship with the person who issued the invitation. So the next time you receive an invitation, take a deep breath and consider whether saying ‘no’ might be the best option for you!

How To Live A Bit Better By Doing A Bit Less

(Laurie Santos | The Science Of Wellbeing)

In a world of seemingly infinite possibilities and opportunities, it is common to feel pressure to make the most out of each day. This often results in a frenetic pace, moving from work to parenting to leisure, like working out or reading books related to your business. This pressure to make the most out of each day can make it hard to relax, step back, and take a mental break from daily stressors.

In opposition to this frenetic pace, a group that calls themselves “Idlers” suggests doing the opposite, finding time throughout the day to do…nothing at all. There is even an “Idler Manifesto” that outlines the tenets of the movement, including “Be good to yourself”, “Life first, work later”, and “Inaction is the wellspring of creation”. The Idlers do not necessarily oppose work, but rather the intensity and unrelenting tempo of modern work.

Even if you do not want to join the Idlers, there are several steps you can take to bring a bit more relaxation into your life. These include work-related items like ending your workday on time and taking an hour off for lunch to talk to people (or take a nap), to avoiding the temptation to pick up your smartphone whenever you have a spare moment. In addition, going to bed early can help you feel more rested and relaxed the following day.

So while it might seem like taking time to do ‘nothing’ might be a waste of your limited hours, finding time to relax can help prevent burnout and potentially help spur creativity (who hasn’t had a brilliant idea while letting their mind wander in the shower?). In the end, being ‘idle’ can not only benefit your mental health but could ultimately improve your productivity!

When To Say No As An Advisor: Why A No Opens The Door To A Better Yes

(Arlene Moss | XY Planning Network)

As an advisory firm owner, it can be tempting to say ‘yes’ to every opportunity that comes around. Whether it is serving every prospect that approaches you (especially early on after starting a firm) to being available for clients at all times. But by always saying ‘yes’, you are not only increasing the odds of burnout, but also could be making yourself less available for more enjoyable or profitable endeavors. The key, then, is to know when it is ok to say ‘no’.

One important time to say ‘no’ is with prospective clients who would not be a good fit for your firm. For example, if a prospect reaches out to your firm who doesn’t fit your niche, saying yes could mean extra work (compared to those in the niche) learning about their individual situation. But saying 'no' doesn’t necessarily mean you are kicking them to the curb; rather, you can offer referrals to more appropriate advisors, a potential win-win situation (as the client gets the service they need and you build your relationship with the other advisor). In addition, saying ‘no’ to prospects who want a level of service or fee structure your firm doesn’t currently offer can also be appropriate. For example, if your firm currently works on an ongoing retainer basis, bringing on a client who wants a project-based engagement could require creating new processes and might not be profitable. It’s also ok to say ‘no’ to taking on new clients when you do not want to be in a growth period, perhaps because you have family obligations or are working on a new venture. Just because a prospect reaches out, it doesn’t mean that you ‘should’ bring them on!

Another area where it is ok to say ‘no’ is setting boundaries for both the days and hours you work, as well as what portion of those days is devoted to client time. One of the benefits of owning your own firm is that you can set your own schedule, which doesn’t necessarily have to match up with the standard Monday-through-Friday, 9-to-5 workweek. For example, some advisors might work five days per week during most of the year and take off Fridays during the summer to spend more time with their family. In addition, some advisors use client meeting surges to gain efficiency (and free time) by concentrating client meetings in a several-week period during a few specified months rather than spread them out throughout the year. With this system, the advisor can be fully invested in preparing for holding client meetings during the surges and have the rest of their time available for business development or time off.

Ultimately, the key point is that while advisors often want to be helpful to prospects and clients (and grow their firm), it is important to set boundaries in a range of areas, from your accessibility to what type of clients you want to work with. Because in the end, saying ‘no’ can potentially make your firm more efficient, creating more time for you to focus on what you value the most, both in the business and in your personal life!

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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, as well as Gavin Spitzner's "Wealth Management Weekly" blog.