Executive Summary
Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a fascinating look at a new CFP disclosure form from Northwestern Mutual, in advance of the CFP Board's new fiduciary disclosure rules, that not only provides a template for what the future of (more thorough) CFP fiduciary disclosure may look like, but also raises questions anew of whether CFP professionals will find it difficult to comply with their fiduciary obligations themselves when working for firms that are primarily in the business of manufacturing and distributing products. Also in the news this week is the official launch of the OneFPA Network "Beta Test", as more than 80% of FPA's 86 chapters declined to even apply but the organization is still moving forward with its test of new staffing, accounting, and technology systems by accepting 11 of the 16 chapters that did request to be involved.
From there, we have several articles on spending and debt, including a look at the common myths of what does (and doesn't) actually increase or decrease one's credit score, the rise of new online installment notes that are replacing payday lending as the new triple-digit-interest-rate high-risk lending program, and how the "old rules of wealth" to save early and often for retirement are falling by the wayside with a Millennial generation that is still struggling to balance the desire to buy a home, start a family, build a career, and save for retirement... on top of carrying a potential mountainload of student loan debt that in some cases may literally take until retirement to repay!
We also have a few articles on financial advisor marketing, including new research on where financial advisors are spending their marketing dollars that work (hint: increasingly on not just social media, but digital advertisements funneling interested prospects to increasingly targeted advisor websites and landing pages), what it really means to pursue a relationship with a "Center Of Influence" (and how to identify such COIs beyond the typical lawyers and accountants), why you should not use a quick auto-responder with every new LinkedIn connection you make, and how Opt-In Text Messages are becoming a new financial advisor marketing channel.
We wrap up with three interesting articles, all around the theme of the growing awareness of the advisory industries' issues with not only gender discrimination but also sexual harassment and sexual assault in the aftermath of the Ken Fisher incident: the first shares the stories of women in finance who have been sexually harassed or assaulted at a financial advisor conference; the second shares stories of women in finance who have faced gender discrimination challenges or similar sexual harassment or assault in the workplace; and the last looks at how advisory industry conferences are beginning to implement more stringent harassment and assault reporting tools, with actual enforcement mechanisms in place, to finally try to change behavior at industry events and hold accountable those engaging in inappropriate behavior.
Enjoy the 'light' reading!
Northwestern Mutual's CFP Disclosures Put Industry's Fraught Questions In Focus (Tobias Salinger, Financial Planning) - With the CFP Board's new fiduciary obligation for CFP professionals to fully take effect next June of 2020, large firms are now preparing the necessary new disclosure requirements that will have to be provided to clients of their registered representatives or insurance agents who have CFP certification. One of the first to be publicly discussed is Northwestern Mutual's new CFP disclosure form, entitled "My commitment to you as a CFP professional", which includes outright disclosures that its CFP professionals are incentivized to "sell Northwestern Mutual insurance products to a client often", that they have a financial interest in selling permanent life insurance with higher initial premiums than term products, and that they're encouraged "to sell more expensive products and services to [the client] which will have the effect of increasing [the CFP agent's] compensation", while also noting that “I know that in the long run, I will benefit most by serving you well... Your interests and my interests align in this respect because I rely heavily on the referrals I receive from satisfied clients. This in itself helps to mitigate the material conflicts of interest described above.” On the one hand, even investor advocates from the Consumer Federation of America are commending what appears to be a sincere effort to explain the relevance of conflicts of interest clearly, which Northwestern is providing as an 8-page template for its CFP professionals to use (or adapt further for their particular business practices as appropriate), and has adapted its grid system to not have any significant boosts in grid payout that might unduly incentivize an advisor to reach the next bonus threshold. And it is notable that, while broker-dealers like Edward Jones have threatened to walk away from the CFP marks if the CFP Board's new standards go through, other firms like Northwestern Mutual stand ready to support their CFP professionals and comply with the rules as written. Yet, on the other hand, the new disclosures also raise fresh concerns about whether CFP professionals working within a firm with such conflicts will be able to navigate those conflicts effectively, as ultimately, while the new CFP Board standards require new disclosures, the CFP professionals working at that firm will be evaluated based on whether they actually managed the conflicts of interest successfully in their recommendations to clients.
FPA Names Chapters In New Network Beta Test (Eric Rasmussen, Financial Advisor) - This week, the FPA announced the names of the 11 chapters that will participate in the "Beta Test" for its controversial new OneFPA Network, after only 16 chapters (or less than 20% of its 86 total chapters) even applied for the program that FPA once claimed was widely supported by the entire membership. The scaled-back initiative will still centralize the chapter executives of the 11 selected chapters to become staffers of the FPA National organization, which will then work with the chapters to adopt a standardized chart of accounts to facilitate cross-chapter financial benchmarking with a rollout of a centralized technology stack next year. Overall, the beta test includes a combination of both smaller chapters and larger chapters, representing about 25% of FPA's overall membership. Ultimately, the stated goal is to facilitate better cross-chapter communication regarding best practices in what chapters pay (e.g., for event space to run their chapter meetings), in addition to hopefully bolstering the growth of membership that has been waning from 30,000 members back when FPA was formed in 2000 to only just over 22,000 members today. As the beta test runs, FPA reports that a tracking sheet of more than 40 Key Performance Indicators (KPIs) will be published to the OneFPA Beta Blog every other week, though it has not yet disclosed which of the innumerable factors are deemed most relevant or what targets the Beta Test must achieve to be deemed "successful" in the first place.
9 Myths About Credit Scores (Demetria Gallegos, The Wall Street Journal) - Given the powerful impact that credit scores have in the economic system, from better terms on credit cards and lower mortgage rates, to lower premiums on auto and homeowners insurance, and sometimes even the ability to get approved to lease an apartment (or to waive the upfront deposits), more and more people are looking to monitor and manage their credit score. Except that the actual mechanics of the credit score aren't well understood - as the providers limit the available information to prevent the system from being gamed too much - and consequently, myths abound regarding what may (but actually doesn't) help or hurt the credit score. Some common myths include: checking credit scores can hurt the credit score (a "hard inquiry" where a financial firm is evaluating a potential loan to you can have an impact, but a "soft inquiry" like an employer conducting a background check does not, nor does a soft inquiry of checking your own credit score); paying bills on time is all you need to worry about (it's not, as "credit utilization" also matters, because paying on time but always being maxed out is a negative compared to 'just' using 30% of your available credit each month, which can be remedied by spending less or simply asking for a credit limit increase); carrying a balance helps boost the credit score (it doesn't, it just racks up interest charges!); closing an old card with a high interest rate will help (it doesn't, and closing a long-standing card can actually reduce the score by reducing the average age of your credit accounts); opening a new retail card at a 0% rate is good for your score (it's not, it's a hard inquiry that's more likely to reduce the score); shopping for a mortgage/auto/student loan hurts the credit score (hard inquiries matter, but if multiple hard inquiries come together, they're bundled together as a single query, and recognized as a single transaction that reflects the borrower is likely just shopping around); and assuming credit reports are accurate in the first place (the FTC found in 2012 that 21% of consumers had errors, with 5% of the cases so serious it impaired their credit... which means it really is important to monitor your credit score to ensure credit events are being reported properly!).
America's Middle Class Is Addicted To A New Kind Of Credit (Christopher Maloney & Adam Tempkin, Bloomberg) - After substantial state and Federal regulatory scrutiny, the payday-loan business has been in decline for several years, but as it turns out many of the same subprime lenders have simply been restructuring to offer a new alternative form of loan: the online installment loan, which has longer maturities than the payday loans of the past, but costs that result in a similar triple-digit interest rate. Notably, though, while payday loans were historically targeted towards the nation's poor, the new online installment loan is being targeted primarily to working-class Americans who are struggling with rising bills but stagnant wages (with household income for those with a high school diploma up 15% in the past decade, but costs up 20% over the same time period, with home prices up 26%, Medicare care up 33%, and college costs up 45%). As a result, non-prime (but 'near-prime' with reasonable-credit-quality) borrowers now collectively owe about $50B on installment products to platforms like NetCredit, often doling out a few hundred or a few thousand dollars at a time, staying below the $2,500 borrowing limit where several states apply an interest-rate cap, and leading California to sign a new law earlier this year capping interest rates on loans between $2,500 and $10,000 at 'just' 36% plus the Fed Funds rate. The industry maintains that the high rates are necessary to manage the default rate on installment loans, which in the first half of this year averaged 12% of the total outstanding (compared to just 3.6% for the credit card industry), and one platform reported that net charge-offs for their installment loan product equaled about 45% of revenue. Still, some are concerned about the rate of growth and the magnitude of the interest rates, especially as subprime installment loans are now being bundled into securities for sale to bond investors... which provides issuers an even lower cost of capital to make more loans, both expanding access to credit for the middle class, but also creating echoes of the securitization of subprime mortgages in the mid-2000s (and the financial crisis that ultimately followed).
The Old Rules For Building Wealth Are Obsolete (Suzanne Woolley, Bloomberg) - One of the fundamental challenges in the financial advisor community in providing financial advice to Millennials is that the average age of an advisor is on par with a Millennial's parents, such that the advisor may be out of touch with the realities of managing cash flow and competing priorities for today's 20- and 30-somethings who might be juggling households where both spouses work and commute, while bearing (6-figure) student loan debt, trying to start a family, and save for a home all at the same time. More generally, the key distinction is that "saving for retirement" often simply isn't high on the priority list for younger clients today, who are still trying to navigate more near-term goals (e.g., can we spend $20,000 on fertility assistance because we're having trouble getting pregnant?) while facing the potential for student loans that literally might not be paid off until retirement itself (as compared to student loans that could be paid off in "just" 10-15 years in the past). Not that saving for retirement isn't important, and in reality a growing number of online platforms have been cropping up in recent years to help Millennials save for retirement, from 'robo-advisors' to even more small-scale savings apps like Qapital and Tip Yourself (along with helping to build emergency savings). Still, though, the fundamental point is that as Millennials today enter the workforce later, and start families later, with more student loan debt, while being more wary of the risks of buying a house (having seen the housing crisis while they were in high school or their early working years), the priorities and wealth-building path today are more complex than simply saving a percentage of income for retirement on autopilot, given the conflict with other quarter-life and mid-life financial priorities.
High-Growth Advisors Go All-In On Marketing (Jeff Berman, ThinkAdvisor) - According to a recent study from Broadridge, approximately 21% of advisors are "growth-focused" advisors (who Broadridge defined as those being aged 25-49 who spent more than $5,000/year on marketing and self-identified as "aggressively focused on adding new clients"), and growth-focused advisors really are able to better drive growth, averaging $297M of AUM (vs just $154M for others), with 43% acquiring at least 20 clients in the past year (compared to only 16% of other advisors who grew at such a pace). And the study found that the most growth-minded advisors are increasingly looking to digital channels for growth, not just by developing websites and engaging in social media, but by actually using paid digital advertising to fill their lead generation pipeline, spending an average of 3.3% of their revenue on marketing that was more likely to be focused specifically on new client acquisition (and not just cross-selling existing clients and family members). Ultimately, the most popular marketing spends were for website development to support digital marketing (76%), in-person events (57%), social media (45%), and CRM systems (44%), with 19% planning to increase investments in digital marketing (along with 14% into webinar marketing and 13% into digital media advertising). Similarly, of the 11% of advisors who considered themselves to be 'innovators' in marketing, 57% indicated their websites were generating leads (compared to just 37% of others), and were converting them faster (averaging 3.4 months, compared to 4.3 months for others to convert a prospect to a client). Overall, Broadridge estimated that the average client acquisition cost for an advisory firm was $929.
Who Are Centers Of Influence, Anyway? (Bryce Sanders, ThinkAdvisor) - It's common to hear financial advisor marketing strategies focus on "Centers Of Influence" (COIs), such as lawyers and accountants who are often in a position to refer a number of prospective clients to an advisor. But Sanders notes that in the end, a COI is simply someone who advises or helps others to whom people turn for advice (which means not only attorneys and CPAs, but even pastors and religious leaders), as well as those who are in key decision-making positions (e.g., the people who select speakers for local groups or association meetings, or those who run a local special interest club). Other potential COIs are those who know about the opportunities of 'money in motion' - for instance, Realtors who are aware when someone is downsizing and therefore may have money to invest after the move, or the development staff at nonprofits who know which donors may have the affluence to write big checks (and while they can't always disclose who's writing what check, a look at the public plaques and event sponsors for the non-profit often reveals the "who", so it's simply to ask for an introduction to make the connection). Ultimately, though, the point is simply that a Center of Influence is someone who is in a position to refer you, introduce you, or tell people about you, and has the potential to do so repeatedly over time (thus making them a 'center' of influence and not just a mere potential referrer).
This LinkedIn Marketing Tactic Can Quickly Backfire (Robert Sofia, LinkedIn) - Almost everyone on LinkedIn today has had the experience of accepting a LinkedIn connection request, only to immediately be confronted with some follow-up sales pitch like "I can get you X leads per month" or "I help people like you do Y", often with such speed that it's not even likely a person but simply an automated 'bot' that sends the same follow-up message to everyone. Accordingly, Sofia asked the question of other LinkedIn users - when you get such a quick follow-up, do you think it's too harsh or quite reasonable to immediately remove the connection and disconnect from them instead? The results: 71% disapproved of the practice, while only 13% approved of it, and 16% were neutral. Notably, the point here is not that it's bad to try to follow up with and connect with someone on LinkedIn, but that as an increasingly personal-communication platform, such "spammy" responses are deemed inappropriate (just as they would be if you made an immediate pitch to everyone you met at a cocktail party!). Instead, the goal - as with any environment where human beings connect - is to first try to make a more personal connection, and then expand the relationship over time to share what you do and the problems you can solve.
An Unexpected Way To Generate Leads: Opt-In Text Messages (Hendrik de Vries, Advisor Perspectives) - One of the biggest challenges for financial advisors doing marketing is that clients may hear about the advisor from lots of different sources (referral, media, Google search, best-advisor lists, etc.), but it's not always clear which source actually 'generated' the lead. The best solution to this problem is to try to direct lead sources from various locations to a specific place (e.g., a certain landing page on the advisor's website), so it's possible to determine where they first heard about the firm based on which particular landing page they engaged with. Except in practice, it's not always feasible to give people a long website URL for them to manually type, particularly in situations through media or public speaking engagements. The alternative? De Vries suggests leveraging an opt-in text message system like Twilio or Leadpages, which allows advisors to give simple verbal Calls To Action like "Text STARTCHAT to 33444 to schedule a Free Consultation", and the text message system then prompts them for their email address, and provides whatever was promised (e.g., schedule a free meeting, receive a free e-book, etc.). Once the text-message-based call-to-action is created, it can be added in lots of places, including the back of a business card, on presentation slides during a speech, on your own radio show or podcast, whenever you're a guest on someone else's show or platform, in print or paid media, in videos, or even via social media or live events. Just be certain to have an offer that's compelling enough for someone to pull out their phone and enter the text message and be willing to hand over their email address in the first place (e.g., a free e-book or other lead magnet resource)!
Unchecked Bad Behavior Runs Rampant At Financial Services Conferences (Sonya Dreizler, Solutions With Sonya) - With the recent incident of Ken Fisher's sexually-inappropriate comments at the Tiburon CEO Summit, a growing number of stories have begun to emerge from women advisors of the pattern of inappropriate behavior that occurs at financial advisor conferences, which former broker-dealer executive and current investment consultant Sonya Dreizler has begun to catalog on her blog as a "Do Better" series to the advisory industry calling for industry change. Of particular note is the frequency of such inappropriate behavior at conferences outside of the usual office environment, which varies from inappropriate gender bias (a female advisor, traveling with all-male colleagues, who was scheduled to go to the spa with the male advisors' wives, by the male advisors who went to meet with the head of the company over dinner, and who were then surprised when she declined the spa appointment and insisted on joining her colleagues for dinner), to an intoxicated advisor who tried to put their hands up a female colleague's dress, a female advisor who was physically assaulted by a fellow male conference attendee in an elevator that left her bruised when she resisted, and a young female financial advisor intern who was served alcohol at an industry event at one of the owner's homes who felt the need to lay down on a couch and rest (in a very open and otherwise-presumed-safe living space) and who woke up to find a male attendee on top of her with her underwear pushed aside and his fingers inside her. Ultimately, the point is not that all industry conferences are unsafe for women, but that just because any particular advisor doesn't see sexual harassment and sexual assault (or outright rape) happening at advisor conferences doesn't mean it isn't happening, and that awareness and understanding women's experiences at advisor conferences today is the first step towards really accepting and then dealing with the problem.
When Locker Room Talk Is Office Talk And Women's Bodies Are For Touching (Sonya Dreizler, Solutions With Sonya) - Continuing her "Do Better" series on advisory industry sexual discrimination, harassment, and assault, Dreizler highlights the stories of women in finance who have experienced such problems in the workplace, some of which might be termed "microaggressions" (unfortunately often dismissed by those who haven't been on the receiving end, but quite harmful and toxic to those who have been targeted), while others are even more offensive and harmful. Some of the stories shared by women include: a boss outright saying to a female employee "I haven't made a pass at you, and it's not because you're not attractive, it's because I learned not to shit where I eat"; a colleague who asked to sleep with a female team member, who declined, and years later ended out reporting to him and was called a "bitch" in a formal performance review (for which he was ultimately 'asked to resign', only to work in a management role at another firm instead); an advisor who told a female wholesaler that he would give her some business if she gave him a blowjob; telling a female colleague walked ahead to "keep walking, I am enjoying the view", or telling another female colleague unpacking groceries "nice melons"; rewarding a female employee by taking her clothes shopping at a designer store and then inviting himself into the dressing room; and a senior advisor allowing a client to sexually assault a junior female advisor in front of him and laughing about it instead of trying to protect her. For advisors who (hopefully!) don't engage in such behavior, Dreizler notes that it's still important for all advisors to call out such behavior, if only to make it clear to colleagues that "we don't do that here" if inappropriate behavior does crop up.
This Is How We Will Break The Culture Of Sexual Harassment (Ann Marsh, Financial Planning) - Sexual harassment and outright sexual assault appears to be an especially pernicious problem at financial advisor conferences, as being a relative stranger in a large group, and away from one's usual environs, may increase the frequency of inappropriate behavior, especially when vendors and sponsors are involved (who may find it even more difficult to speak up about the issue at risk of losing a prospective firm's business). In fact, a SourceMedia survey last year found nearly 1/3rd of women reported a high prevalence of sexual misconduct in the wealth management industry (far higher than other white-collar industries), though many women report not being heard and respected even when incidents are reported (or worse, potentially subject to backlash themselves). But a growing awareness of untoward conference behavior is now creating a backlash from conferences themselves trying to stamp out such behavior, starting with XY Planning Network that implemented a strict policy against sexual harassment and discriminatory behavior at its events in 2017, which has since been mimicked by the Financial Planning Association and eMoney Advisor, and TD Ameritrade is now reportedly exploring a similar new policy (or at least, stronger communication of its existing policies) after a report of a harassment incident at one of its conferences as well, with more conferences discussing whether to adopt similar new policies for their events in 2020.
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 as well.
Michael, thank you for including articles on sexual misconduct. The “Me Too” movement does not exempt our profession. Knowing that you’re an extremely sought-out expert speaker at conferences, and knowing that the XY Planning Network has led the charge on implementing (read: not just lip service) a “strict policy against sexual harassment and discriminatory behavior,” I wonder if you’d be so bold as to decline invitations to speak unless the conference also instituted the policy. You have the platform and power to create change.