Weekend Reading For Financial Planners (October 12–13)

CFP Board Ad Campaign Targeting Students Elicits Strong(ly Negative) Reactions From Current Advisors

(Tracey Longo | Financial Advisor)

Given the graying of the financial advisor population (with the average age of an advisor hovering somewhere north of 50), and forecasts from Cerulli advisors that nearly 1/3 of advisors may retire in the next decade, efforts to attract new talent has become not only an imperative for individual firms, but also for the financial planning professional as a whole. Amidst this backdrop, CFP Board last year announced its bifurcation into 2 organizations, one of which, with 501(c)(6) nonprofit status, would allow it going forward to be more explicit in marketing the benefits of becoming a financial planner to recruit more future CFP professionals (rather than 'just' marketing the benefits of working with a CFP professional to consumers, where CFP Board previously had to focus its efforts when it was solely a 501(c)(3)).

Using their newfound capability, CFP Board last month debuted a digital ad campaign aimed at high school and college students (and appearing on platforms such as Spotify, TikTok, Snapchat, and Facebook) based on the theme that financial planning is "Quite Possibly the Perfect Job". A series of 15-second videos depicts individuals in imaginary jobs-that-really-aren't (e.g., bubble bath sommelier or chief self-care officer) and suggests that given that these don't exist, they might consider a job in financial planning, noting a range benefits it can provide (e.g., earning potential, work-life balance, opportunity to care for others, and make a positive difference). In addition, static ads also promoted the "Quite Possibly the Perfect Job" theme, highlighting the benefits of a job in planning while depicting individuals either relaxing or in the midst of their alternative imaginary-and-not-realistic job.

While the ad campaign is aimed at students contemplating their future career direction, the static versions of the ads quickly found their way into the social media feeds of current financial planners, drawing often heated reactions. For instance, one of the screenshotted ads showing an individual sleeping on a couch with the "Quite Possibly the Perfect Job" caption and the "Future CFP Pro" logo (with the text of the post saying that becoming a financial advisor gives individuals the flexibility of managing their own time) – a mash-up of the imaginary job and CFP professional alternative – which led some advisors to question whether students might get the impression that the ad was suggesting how working as a financial planner is easy (so easy you can just sleep on a couch while making lots of money!?), and/or that individuals uninterested in hard work would be appropriate candidates. In addition, some worried that some potential planning clients could see the ads, and then question how much work their financial planner is really performing for them if the CFP Board suggests it's a job that can be done while sleeping on the couch or taking a bubble bath.

In response to this criticism, CFP Board officials noted that the ads weren't designed to depict CFP professionals but rather individuals in the imaginary jobs (context that the video ads made far more clearly, but was entirely lost in the static ad images), and that its research suggested that the organization needed a provocative message to break through with current Gen Z students. Accordingly, CFP Board indicated that the ad campaign will run through the end of the year and that it is monitoring metrics to ensure it reaches the intended audience and brings positive results.

Altogether, CFP Board's ad campaign (and the advisor reaction to it) demonstrate the challenge of communicating many of the research-backed benefits of working in financial planning, and gaining the attention of students and others who might be interested in a career in planning, while still also building the credibility of financial planning as a profession with the public as a whole, recognizing the serious nature of planning work, and the training and experience needed to be an effective financial planner.

Though arguably, beyond the clearly problematic static ads, the bigger question is simply whether the ad campaign not only will be able to attract interest from students considering a career in financial planning, but, in particular, those with the characteristics (e.g., being future goal-oriented, having a desire to help others, and having an interest in personal finance) that Kitces Research suggests will make them more likely to actually succeed as an advisor for the long run (which is important, given the relatively high attrition rates experienced in the financial advice industry). Otherwise, the CFP Board's efforts to attract next generation talent, and its early proclamation that students have been responding to the ads and requesting more information about financial planning, will eventually fall flat as the candidates discover that the actual job of being a financial planner isn't the right fit for them, and today's ad campaign will simply be CFP Board contributing to future talent churn.

In the meantime, though, in response to online discussions of the ad campaign, some advisors are taking matters into their own hands by using their social media platforms to describe why financial planning really is "quite possibly the perfect job" for them (literally, using the #QuitePossiblyThePerfectJob hashtag), perhaps giving aspiring advisors an idea of the wide range of positive experiences and benefits financial planners encounter in their chosen profession!

Edward Jones Launches Financial Planning Offering

(Dinah Wisenberg Brin | ThinkAdvisor)

Over the years, many RIAs and their advisors have attempted to differentiate themselves from their larger counterparts (e.g., national broker-dealers) on several levels, including their ability to provide comprehensive financial planning services rather than just investment product recommendations. However, some of the largest national financial firms in recent years have been expanding their planning services, often providing them for a separate planning fee (rather than solely as a tool to sell financial products on a commission basis).

This momentum appears to be continuing, with broker-dealer Edward Jones this week announcing that its advisors will offer financial planning services to eligible clients with a separate client agreement and fee. According to the firm, clients with at least $250,000 in Edward Jones advisory program accounts will have access to personalized planning (covering areas such as estate planning, tax planning, and scenario modeling) for a $3,600 planning fee. The company said that the rollout will be done in waves and expects it to be available to all 19,500 of its advisors by 2025 (suggesting that if each of its advisors creates 50 financial plans over the next few years, almost 1 million new plans will be created!). Notably, in line with its rollout of planning services, Edward Jones has been increasing the number of CFP professionals on staff faster than any other firm, with 1,000 of its advisors becoming CFP certificants in 2023 (a 62% year-over-year increase), representing almost 1/6 of the total of new CFP certificants added during the year.

In sum, Edward Jones' move into financial planning indicates that incumbent firms and advisors could be facing increased competition not only for clients (particularly given the national firms' sizeable marketing budgets), but also for advisor talent as well. Which suggests that as comprehensive financial planning services are becoming more commonly available, those that are best able to show what truly makes them 'different' in the eyes of prospective clients (and potential employees) could see greater success in an increasingly competitive environment.

"Great Wealth Transfer" Presents Advisors With Significant Opportunity: Survey

(Emile Hallez | InvestmentNews)

Members of the Baby Boomer generation are expected to pass on trillions of dollars in the coming decades to spouses, children, and others. For financial advisors, this phenomenon presents both challenges (e.g., potentially losing the assets of clients who pass away) and opportunities (e.g., winning business from recent inheritors who might need assistance managing this windfall).

According to a survey sponsored by Equitable, among individuals expecting to receive an inheritance of more than $100,000, 81% plan to use a financial advisor to help them manage their new wealth. Demonstrating potential opportunities for advisors to boost their organic growth, 34% of respondents said they currently don't work with an advisor but plan to do so after their expected inheritance (indicating this large group could represent a source of growth through new client assets) and another 33% said they currently work with a financial advisor and plan to continue to work with the same individual after receiving their inheritance (potentially boosting a firm's total AUM from current clients). At the same time, 14% of respondents indicated they currently work with an advisor but plan to work with a different advisor after their anticipated inheritance, which could offer an opportunity for certain advisors (e.g., if a prospective client would meet their asset minimum after receiving their inheritance) but also perhaps sound a note of warning that certain clients could look to another advisor once their wealth grows.

Ultimately, the key point is that while the "Great Wealth Transfer" presents financial advisors with the opportunity to win over recent inheritors as clients, it also offers a potential challenge in trying to keep assets in the firm when a client passes away. Which suggests that advisors could proactively take steps to hold on to client assets, whether by building strong relationships with both spouses when working with client couples (so that the surviving spouse wants to remain with the firm) and/or by starting to build relationships with clients' children to encourage them to work with the firm when they receive their inheritance (though firms might consider whether they can profitably serve these next-gen clients?).

The Financial Factors Behind Retired Clients' Housing Decisions

(Neal Templin | Barron's)

Many retired clients who have owned their home for decades dream of staying put in it for their remaining years. Others, on the other hand, look to downsize to a home that better fits their empty nest lifestyle and might be more accessible in case of future physical impairment. Still others might be forced to make a housing decision, perhaps because of a divorce. And while personal preference plays a large role in these decisions, the financial considerations underlying different housing options can factor into these choices as well.

The past several years have brought home price appreciation to many parts of the country. For clients nearing or in retirement who have owned their home for many years, this trend could represent a boon to their finances, as they could take away significant equity were they to sell their home. At the same time, because they will need somewhere to live after a sale, related trends can influence their decision. To start, if these clients decide to buy a new home, they could find themselves buying in a higher-priced, competitive market (though if they are moving to a smaller home or lower-cost-of-living location, this option could still look particularly attractive). Further, their housing expenses could increase further if they decide to finance the home in the current elevated (compared to a few years ago) mortgage rate environment.

Notably, these factors have led some homeowners to sell their homes and rent instead of buying a new home in retirement. Researchers found that, based on home prices earlier this year, renting would cost less than owning in 94 of the 98 markets studied (though the factors underlying this calculation could vary year to year). Of course, in addition to financial calculations (which also include the (in)ability to build equity in a home as well as the expenses involved in upkeep), the decision to rent or buy entails non-financial considerations as well (e.g., the potential to have to move based on a landlord's desires when renting).

In the end, given the complicated nature of the own versus rent decision in retirement, financial advisors can play a valuable role not only in determining the financial implications of this decision and potential options (e.g., different ways to tap home equity, from an outright sale to a reverse mortgage), but also in helping clients explore their goals for their living situation in retirement (e.g., a desire to 'age in place' versus the lifestyle flexibility that can come with renting) to help them make a decision that makes sense both financially and emotionally!

The (Potential) Role Of Reverse Mortgages For Affluent Investors

(Emile Hallez | InvestmentNews)

For homeowners aged 62 or older, a reverse mortgage is one potential option for tapping their home liquidity. This tool allows homeowners to borrow against their primary residence without making any ongoing payments; instead, interest simply accrues on top of the principal and, most commonly, is not repaid until the homeowner either moves and sells the home or when it is sold by heirs after the original owner passes away. And while financial advisors might view the primary use case for reverse mortgages as supporting the income needs of individuals with limited assets outside of their home equity, more affluent clients might benefit from this tool as well.

One potential use case for reverse mortgage is to mitigate against sequence of return risk. Given the potential (permanent) impairment to a client's portfolio (and its ability to generate retirement income) that can come from a need to withdraw funds from the portfolio during a market downturn to support lifestyle requirements, having an alternative source of income can allow the portfolio to remain intact (allowing it to fully participate in a future market recovery). And for homeowners (particularly those with significant equity in their homes), a reverse mortgage could serve this purpose. As while some individuals use reverse mortgages to provide a steady stream of income, they can also be used more strategically, only tapping it a source of funds only when needed (e.g., during a market downturn), which could ultimately help clients maximize their invested assets and leave a larger legacy interest than they otherwise might. And while there are other financial considerations when considering a reverse mortgage (e.g., applicable interest rates and fees), having it available in case of a future downturn could prove to be a prudent, proactive move for certain clients.

Altogether, while reverse mortgages might not be top-of-mind for financial advisors working with wealthy retirees (and come with a range of requirements and charges), they could serve a role in mitigating against sequence of return risk, particularly for clients largely reliant on an investment portfolio to support their needs in retirement. Which could present an opportunity for advisors to add value by both determining which clients might benefit from such a strategy and, if so, helping them implement it in an efficient manner!

How To Vet The Financials Of A Continuing-Care Retirement Community

(Joanne Cleaver | The Wall Street Journal)

For many retirees, moving to a Continuing-Care Retirement Community (CCRC) can be an attractive proposition, as they typically offer a low-maintenance lifestyle (and a natural social network) with a promise of higher levels of care if needed (e.g., moving from independent living to assisted living to nursing care if necessary). At the same time, moving to a CCRC can be a major financial investment, both in terms of the upfront deposit that is often required, as well as monthly resident fees charged.

Given that a significant part of the value of moving into a CCRC (and the reason for making the financial commitment to do so) is the guarantee that an individual or couple will be able to remain there for the rest of their lives, analyzing the financial status of different CCRCs can be a valuable practice for those considering this option (perhaps with the assistance of their financial advisor!) to ensure that it is on sound financial footing today and that this is poised to continue well into the future.

A CCRC's financial data can be found in its annual financial reports (sometimes found in the 'about' section of its website) as well as in financial disclosures filed with the insurance regulator for the state where the CCRC is located (which can provide more detailed information about a CCRC's debt). Within these documents, key metrics to consider include cash on hand (at least 120-200 days' worth is optimal, according to analysts), operating income (within 5% to 10% of expenses if possible), and unrestricted cash that can be used for debt repayment (preferably with a ratio of at least 40% of cash on hand relative to debt). Other factors to consider include whether the facility is in need of (potentially expensive) improvements (with experts suggesting that facilities tend to need to be renovated at least every 20 years to continue to attract new residents) as well as current and historic occupancy rates (with higher rates, perhaps above 90%, indicating a healthier operation).

In sum, given the personal and financial commitment an individual or couple makes when they move into a CCRC, finding one that both meets their lifestyle preferences and has the financial wherewithal to thrive for what could be multiple decades of residence is crucial. Which offers financial advisors an opportunity to add value for clients (and potentially serve as a service differentiator?) by helping them gather and analyze relevant data to make a better informed decision of which CCRC to choose.

From Pet Insurance To Performance Data, RIAs Get Creative With Employment Packages

(Andrew Foerch | Citywire RIA)

A prominent trend over the past several years has been the competitive landscape for advisor talent (which could accelerate as more members of the aging advisor workforce retire). Which has led some firms to offer increasingly attractive salaries and pay packages to attract and retain a strong workforce. Nevertheless, some firms have found that many candidates and employees are looking for benefits and perks outside of salary and bonuses, giving firms an opportunity to stand out from the pack by offering a unique employee value proposition.

Speaking during a panel during the recent Future Proof Festival, a group of RIA executives discussed the 'total rewards' (rather than just a pay package) that many candidates and employees are seeking. Altogether, relatively newer advisors appear to put a priority on work-life balance, which could be met in a variety of ways, from creative paid time off policies to flexible work schedules. When it comes to employee benefits, some employees are looking beyond 'standard' benefits such as health insurance to offerings such as pet insurance. Another potential perk is to offer employees a quarterly 'wellness bonus' that could be used for the wellness expenses (e.g., gym membership or a subscription to a meditation app) that best fit their unique needs.

Further, employee surveys can be an effective way to gather information about the types of benefits their employees (and perhaps candidates in similar life situations) are seeking, which do not necessarily require a financial outlay from a firm. For example, in response to employee feedback, one firm started offering more detailed (anonymized) performance information so employees could compare their own numbers (e.g., in terms of assets they bring in, which feeds into their incentive pay) with those of their peers.

Ultimately, the key point is that firms that are able to align their benefits and perks with the priorities of the employees they wish to hire (while still providing competitive pay packages) could find themselves at a competitive advantage in the current hiring landscape and allow them to retain employees for the long haul!

How Do Employees Value Synthetic Equity?

(Philip Palaveev | Financial Advisor)

Many companies, including financial planning firms, offer their employees equity compensation, both as a way to sweeten a compensation package and as a way to align the employees' interests with the firm's (as the employee's wealth will depend in part on firm performance). However, with only so much equity to offer (and, in some cases, reluctance on the part of firm owners to dilute their ownership), some firms have looked to an alternative solution: synthetic equity.

While 'true' equity ownership typically includes the right to income (i.e., a portion of the firm's profits), the right to vote (on business matters relevant to the firm), and the right to appreciation of value (i.e., the value of an owner's shares increases as a firm's enterprise value grows), 'owners' of synthetic equity do not receive one or more of these rights. For instance, an employee might receive non-voting shares, allowing them to receive profit distributions and proceeds if the company is sold without giving them a say in business matters (which could be attractive to founders who don't want to give up control of their firm). Alternatively, a company could grant 'phantom stock' that participate in the value of the company (allowing holders to cash in if the company is sold) without offering voting rights or profit sharing.

Offering employees one or multiple forms of synthetic equity could be attractive for firm owners who don't want to offer all 3 attributes of 'true' equity, but this form of compensation might not have the same impact on the attraction and retention of employees as does 'true' equity. For example, while recipients of 'phantom stock' could financially benefit from the growth of the company's value, this is only realized if the company sells (further, while recipients of phantom stock typically are subject to ordinary income tax rates on the proceeds they receive, those with 'true' equity can potentially benefit from paying more preferable long-term capital gains tax rates).

Altogether, while receiving synthetic equity might be more attractive to a job candidate or employee than receiving no form of equity at all, they will likely recognize that it is not the 'real' thing and adjust their evaluation of the offer (and/or their commitment to the firm) accordingly, suggesting that keeping in mind both their priorities (e.g., retaining a certain ownership interest or voting rights) and how it is likely to be received by employees can help firm owners craft an equity solution that helps them best achieve their (sometimes competing) goals.

The Complicated Effects Of Pay Transparency

(Tomasz Obloj and Todd Zenger | Harvard Business Review)

Historically, many companies have tried to keep details of employee compensation closely held, both from competitors (who might use this data to try to poach the company's employees with a more attractive compensation offer) and from employees and job candidates themselves (to prevent these individuals from comparing their pay and to provide the company with a leg up in salary negotiations). However, this practice has been slowly reversing in recent years, driven in part by laws requiring pay visibility, the proliferation of websites (e.g., Glassdoor and Salary.com) that offer position and/or employer-specific compensation data, and a desire of some companies to be more transparent with employees and job candidates. A key question, though, is what the ultimate effect of increased pay transparency will be.

On the positive side, some research suggests that pay transparency can reduce pay inequities across gender, ethnicity, sexual orientation, and other dimensions. However, separate research found that increased pay transparency has the potential to lower overall employee wages (while lifting pay for the inequitably underpaid), because pay transparency (e.g., publishing salary ranges for certain positions) potentially allows employers to more credibly commit to not negotiating with current or prospective employees.

Further, pay transparency can be a double-edged sword when it comes to productivity. A separate study found that if pay transparency revealed to employees that if the company had been equitable and consistent in how pay related to performance, employee productivity subsequently increased. However, productivity declined if pay transparency revealed that the company had unfairly allocated pay (e.g., by engaging in gender discrimination). In addition, while some research suggests that pay transparency leads companies to be more consistent in rewarding observable performance measures (though can lead companies to reduce the availability and scale of incentive pay), employees might have the tendency to align their work to meet those specific measures rather than broader company goals. For example, a study based on the National Hockey League found that when pay became more transparent, players discovered teams were prioritizing offensive statistics (over defensive metrics) and subsequently pursued these metrics (e.g., goals and assists), sometimes to the detriment of (equally as important) defense to boost their prospects during their next contract negotiation.

In the end, while pay transparency appears to have brought more fairness to employee pay, it also has introduced a new set of challenges, from creating flatter pay structures to potentially creating employee incentives that are misaligned with the employer's goals. Which suggests that both employees and employers have work to do to create effective compensation arrangements that pay employees fairly based on what they bring to the table and incentivize the type of performance the company needs to succeed.

The Cult Of Blind Ambition

(Adam Singer | Hot Takes)

In the social media age, it's almost impossible to avoid being flooded by individuals talking about how they've achieved success (4am juice cleanse, anyone?). This can be a positive if it inspires a reader to take the next step in advancing their own career. However, this trend can have a darker side if it drives an individual to pursue an external definition of success that doesn't match their true inner desires.

Associating with 'high performers' (whether online, in real life, or both) can be useful to a certain extent, whether it is picking up productivity tips or being inspired to make a potentially risky career move. However, spending too much time around 'ambition influencers' could leave an individual pursuing certain status symbols (e.g., a certain income or job title) for their own sake, whether or not they align with the individual's true inner goals. Because while many of these influencers might seem to have the perfect life in their (highly curated) social media feeds, it's impossible to know exactly what their lives are like behind the scenes. With this in mind, Singer suggests that while dipping one's toes into ambition culture might be alright, it's important to hold on to one's "inner compass" because otherwise you might end up achieving a goal that wasn't important to you in the first place, or, perhaps worse, being so tired at the end of the journey that you forgot why you started out on it to begin with.

Ultimately, the key point is that the ability to draw inspiration from those who have found success while still 'playing your own game' is a type of superpower, allowing you to work towards your own goals without needing constant external validation (or veering off track) along the way.

4 Types Of Metric-Less Success

(Lawrence Yeo | More To That)

There are many possible metrics that can define success, from salaries to job titles to awards (or in the case of the financial advice industry specifically, figures such as AUM or total revenue). Nonetheless, while such metrics can no doubt be important and can draw respect from peers, many of the factors that lead to a happier life and stronger relationships cannot be measured in numbers or accolades alone.

For instance, choosing the 'right' person to marry (if one decides to get married) can have an enormous effect on one's life but can't be calculated on a spreadsheet. From having a companion who provides support through life's ups and downs to joining an extended family network, choosing a good partner can trickle down to many other aspects of life. Similarly, the ability to maintain good health (which doesn't come with a single 'score') can affect many other parts of life as well, from having the physical ability to do what one wants (now and into retirement) to maintaining the energy needed to thrive during busy periods in one's life. Another type of metric-less success is being compassionate to others, as while status can come and go over time, people will often remember how you treated them, particularly when it wasn't necessary to be kind and compassionate to them. Finally, perhaps the most important marker of metric-less success is the ability to live in alignment with one's values, demonstrating integrity in one's personal and professional lives.

In the end, while common metrics of 'success' can provide a sense of status and accomplishment, many of the factors that underlie a life of meaning and connection cannot be measured in numbers alone, but rather in one's character and relationships!

Do It Your Way

(Morgan Housel | Collaborative Fund)

For many entrepreneurs (including financial advisory firm owners), there can come a time when they have an offer to be acquired by a larger company. Which offers the opportunity to monetize the investment (in sweat equity and otherwise) they've made in their firm and perhaps grow their impact further within the larger company.

However, many entrepreneurs find that such as transition is unsatisfying, in large part because they no longer can do things 'their way' and are forced into the processes of their new employer (even if their new company has been very successful in its own right). Which suggests that entrepreneurs (and employees as well) tend to work best (and enjoy their work more) when they don't feel like someone is always looking over their shoulder (which perhaps offers an additional lesson for advisory firm owners whose staff might look to start their own firms if they feel constrained and judged in their current role?).

A similar tendency can happen in the world of personal finance as well, as individuals can be influenced to adopt an investment strategy that doesn't meet their risk tolerance or ultimate goals, or perhaps be convinced to (not) spend in a way that doesn't sync with what brings them happiness and meaning. Which ultimately highlights one of the key value propositions of a financial advisor – the ability to help clients explore their goals and aligning their financial plan (from their cash flow to their asset allocation) to meet their personal 'benchmarks' and not those that others (or society as a whole) might suggest for them!

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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.